SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
-------------
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (Fee Required) For the fiscal year ended
December 31, 1995.
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (No Fee Required) For the transition period from
___________ to ___________
Commission file number: 1-4252
------
UNITED INDUSTRIAL CORPORATION
- ---------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 95-2081809
- ------------------------------------- -----------------------------------
(State or Other Jurisdiction of (I.R.S. Employer Identification
Incorporation or Organization) No.)
18 East 48th Street
New York, New York 10017
(212) 752-8787
- ---------------------------------------------------------------------------
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
- ------------------------------------- -----------------------------------
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
NONE
- ---------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [x] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statement incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [_].
Aggregate market value of the voting stock (which consists solely of shares
of Common Stock) held by non-affiliates of the registrant as of March 1,
1996, computed by reference to the closing sale price of the registrant's
Common Stock on the New York Stock Exchange Stock Exchange on such date:
$51,477,821.
On March 1, 1996, the registrant had outstanding 12,172,143 shares of
Common Stock, par value $1.00 per share, which is the registrant's only
class of common stock.
DOCUMENTS INCORPORATED BY REFERENCE:
1. Certain portions of the registrant's Annual Report to Shareholders for
the fiscal year ended December 31, 1995 are incorporated by reference
into Parts I and II of this report.
2. Certain portions of the registrant's definitive Proxy Statement to be
filed pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended, in connection with the Annual Meeting of
Stockholders of the registrant to be held on May 14, 1996 are
incorporated by reference into Part III of this report.
<PAGE>
PART I
------
ITEM 1. BUSINESS
United Industrial Corporation ("United" or the "Company") was
incorporated under the laws of the State of Delaware on September 14,
1959 under the name Topp Industries Corporation. On December 31,
1959, the name of the corporation was changed to United Industrial
Corporation.
The operations of United consist of three principal industry segments:
defense, energy systems and plastic products, conducted through four
wholly-owned subsidiaries.
Defense
-------
AAI Corporation
AAI Corporation ("AAI") is engaged in research, development and
manufacture in the following major areas: (1) training and simulation
systems; (2) automatic test equipment for electronic systems and
components; (3) ordnance systems; (4) mechanical support systems for
industrial, military, and marine applications; (5) unmanned air
vehicle systems; (6) automated weather monitoring systems; and (7)
transportation systems. Since its inception, AAI's business has been
primarily in support of the U.S. Department of Defense ("DOD"). Since
1990, the Company has emphasized diversification into other markets to
reduce its dependence on the DOD. The United States defense budget
has been significantly reduced in recent years and this trend is
expected to continue. In 1995 approximately 64% of the sales volume
of AAI consisted of research, development and production of military
items under defense contracts compared to 74% in 1994. Certain of the
contracts currently being worked on by AAI involve testing systems for
U.S. Navy aircraft, training equipment for the U.S. Air Force and U.S.
Navy, and weapons handling systems for the U.S. Army.
The balance of AAI's business consists of work performed in the non-
Department of Defense markets. These areas include hydraulic test
equipment, transportation equipment and weather systems. AAI was
awarded a contract for 1,096 weather systems to be installed in
certain government airports throughout the country. This contract was
recently restructured and extended through 1997. New orders were
received in 1995 for 53 additional systems. In 1995, 144 weather
systems were installed bringing total systems installed since
inception of the contract to 677.
Because of the variety of its activities, it is not possible to state
precisely the competitive position of AAI with respect to each of its
product lines. In the area of training and simulation systems, AAI is
one of approximately ten leading organizations developing equipment
for the U.S. Government. AAI's ability to obtain orders for training
and simulation systems is dependent principally on the ability,
expertise and training of its
2
NYFS11...:\95\78495\0001\1196\FRM3196L.18B
<PAGE>
employees and the level of funding by the DOD and foreign military
users. A number of large and small companies produce automatic test
equipment that compete with AAI for market share. In the area of
weapons and munitions, AAI ranks among approximately ten leading
companies engaged in development work. However, AAI's production
activity in this field is less significant. AAI began development in
the Unmanned Air Vehicle business in 1986. The Company produced the
highly successful Pioneer Unmanned Air Vehicle employed by the United
States during Operation Desert Storm, and presently is pursuing
contracts with foreign countries. AAI is one of several large and
small competitors in this field.
On January 16, 1992, AAI acquired, through a newly-formed subsidiary
AAI/ACL Technologies, Inc. ("AAI/ACL"), substantially all of the
assets and business of ACL Technologies, Inc., a manufacturer of
hydraulic test equipment for the commercial airline and defense
markets. Business results of AAI/ACL have been less than anticipated
because of the continued unfavorable economic situation of the
commercial airline industry in the U.S. and worldwide. However,
activity in this market is beginning to recover.
On March 29, 1993, the Company's Board of Directors approved a plan of
reorganization and restructuring whereby, in light of existing
circumstances such as the declining Department of Defense budget and
the continuing financial problems of the airline industry and in order
to position itself for both short and long-term growth, it took a one-
time restructuring charge. The charge covered the anticipated cost of
organizational and product-line changes, the consolidation of
facilities, and work force reductions of approximately 300 in AAI and
its four subsidiaries. The non-recurring charge of $22.5 million
($14,370,000 or $1.17 per share, net of tax benefit) was taken during
1993. As at December 31, 1993, the restructuring program was
substantially completed. During 1994, $750,000 was expended. A major
portion of the charge resulted from the discontinuance of operations
of AAI/MICROFLITE. AAI/MICROFLITE, acquired in 1991, was formerly the
commercial division of Singer-Link Corporation, a manufacturer of
flight simulators and training devices for commercial aircraft. All
of the remaining assets of AAI/MICROFLITE were sold in 1994.
AAI's administrative offices and the major part of its manufacturing
and engineering facilities are located in Hunt Valley, Maryland.
Symtron Systems, Inc.
On January 18, 1994, the Company acquired all of the outstanding
shares of Symtron Systems, Inc. ("Symtron"), a producer of firefighter
training simulators for the government, military and commercial
markets. The purchase price consisted of initial cash payments of
$2,000,000, assumption of certain liabilities of approximately
$5,900,000 and a contingent payment, not to exceed $1,000,000, based
on the profits on contracts existing at the acquisition date. In
1995, the Company made the contingent payment of $1,000,000 which was
classified as selling and administrative expense in the 1995 financial
statements.
3
<PAGE>
Additionally, contingent amounts are payable if certain pretax
profits, as defined in the purchase agreement, are earned for each of
the years in the four year period ending December 31, 1998. Funds
generated from operations and an existing line of credit were utilized
to finance the purchase of Symtron. The acquisition was accounted for
as a purchase, accordingly, the operations of Symtron are included in
the Company's 1994 financial statements. In 1995 approximately
$11,500,000 of the sales volume of Symtron consisted of production
for the Navy and commercial customers. The main office and plant of
Symtron are located in Fair Lawn, New Jersey.
Energy Systems
--------------
Detroit Stoker Company
Detroit Stoker Company ("Detroit Stoker") is engaged in the design,
manufacture and sale of industrial stokers, gas/oil burners, municipal
solid waste combustion systems for waste to energy plants, rotary seal
feeders for the metering of granular materials, replacement parts and
aftermarket services. Its products are used for the generation of
process steam and electric power in a wide range of industrial and
municipal applications. Principal customers include public utilities,
industrial manufacturing plants, universities, pulp and paper mills,
sugar mills and independent power producers (non-utility generators).
Its waste to energy technology is used extensively in both public and
private plants which generate steam and power from municipal waste.
Its solid fuel combustion technologies are particularly well suited to
the burning of biomass fuels. The primary raw materials used by
Detroit Stoker are iron and steel which are available from many
sources. The main office and plant of Detroit Stoker are located in
Monroe, Michigan.
The products of Detroit Stoker compete with those of several other
manufacturers. Detroit Stoker is presently marketing a liquid and
gaseous fuel burning product line with low emissions for the power
industry, primarily for boiler applications. Potential customers for
these products consist of original boiler manufacturers as well as all
major industrial and institutional energy consumers. Competition is
based on several factors including price, features and performance.
In 1995, Detroit Stoker withdrew from the bulk material handling
systems business in a strategic move to allow better use of resources
in more profitable areas.
Midwest Metallurgical Laboratory, Inc. ("Midwest"), a subsidiary of
Detroit Stoker, is a foundry engaged in the manufacture of grey and
ductile iron, stainless steel and special alloy iron castings.
Approximately 85% of the sales of Midwest are to Detroit Stoker.
Midwest's plant and offices are located in Marshall, Michigan.
4
<PAGE>
Plastic Products
----------------
Neo Products Co.
Neo Products Co. ("Neo") engineers and fabricates thermoplastic
products to the specifications submitted by its customers. Neo also
manufactures items for point of purchase display advertising and
consumer products related primarily to infants, food service equipment
for a major airline and fuel tank reservoirs for the auto industry.
Sales to customers of items for point of purchase display advertising
represented approximately 30% of sales in 1995. These sales
principally consisted of display racks and trays. Sales of consumer
end use items represented 63% of sales in 1995. These sales primarily
included carrier cradles, chairs and waste baskets. Sales to the auto
industry represented approximately 7% of sales in 1995. The largest
customer of Neo accounted for approximately 54% of sales in 1995
compared to 39% and 32% in 1994 and 1993, respectively. Neo's main
office and plant are located in Chicago, Illinois.
Neo is engaged in the highly competitive field of thermoplastic
fabrication. Neo's operations are in potential and actual competition
with fabrication facilities of some of its own customers as well as
other thermoplastic fabricators. Neo has improved its competitive
position by increasing the size of its larger injection molding
presses to accommodate larger size molded parts. Although it is not
possible to estimate the position of Neo among competitors in this
field, it is believed to hold less than 1% market share. The primary
raw material used by Neo is plastic resin, which is available from
many sources.
For additional information concerning United's subsidiaries reference
is made to information set forth in the sections entitled "AAI
Corporation", "Symtron Systems, Inc.", "Detroit Stoker Company" and
"Neo Products Company" commencing on page 5 of United's 1995 Annual
Report to Shareholders (the "Annual Report"), which sections are
incorporated herein by reference.
General
-------
Employees
As of March 1, 1996 United and its subsidiaries had approximately
2,000 employees. Approximately 200 of these employees are represented
by several unions under contracts expiring between July 1997 and March
1999. United considers its employee relationships to be satisfactory.
Patents
United and its subsidiaries own more than 100 United States patents
relating to various products, including stokers, marine equipment,
ordnance and electronic equipment, and
5
<PAGE>
firefighter trainers. In addition, United has numerous pending
applications for patents. There is no assurance as to how many
patents will be issued pursuant to these pending applications. The
applications relate to a wide variety of fields, including automation
control systems, ordnance devices, and electronic developments. No
patent is considered to be of material importance to United.
Research and Development
During 1995, 1994 and 1993, the subsidiaries of United (exclusive of
AAI) expended approximately $194,000, $98,031, and $126,300,
respectively, on the development of new products and the improvement
of existing products. All of the programs and the funds to support
such programs are sponsored by the subsidiary involved. In addition
to the above amount, AAI is substantially engaged in research and
development for the U.S. Government.
Backlog
The backlog of orders by industry segment at December 31, 1995 and
1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Defense $198,788,000 $211,751,000
Energy Systems 5,070,000 4,627,000
Plastic Products 2,349,000 1,281,000
</TABLE>
The defense contract backlog decrease more than offsets the increase
in commercial backlog of the defense segment. The increase in backlog
for energy systems was due to the increased level of new contracts
being awarded. Except for approximately $66,000,000 of research and
development backlog, substantially all of the backlog orders at
December 31, 1995 are expected to be filled in 1996.
Government Contracts
No single customer other than the U.S. Government, principally the
Department of Defense, accounted for 10% or more of net sales during
the year. Sales to the Government normally carry a lesser margin of
profit than commercial sales and may be subject to price
redetermination under certain circumstances. Contracts for such sales
can be terminated for the convenience of the Government.
Financial Information Relating to Industry Segments
For financial information with respect to industry segments of United,
reference is made to the information set forth in Note 13 of the Notes
to Financial Statements included in Item 8 of this Report, which Note
is incorporated herein by reference.
6
<PAGE>
Foreign Operations and Export Sales
United and its subsidiaries have no significant foreign operations.
During 1993 export sales by United and its subsidiaries amounted to
approximately $31,258,000. Export sales in 1995 and 1994 amounted
to less than 10% of net sales for these years.
ITEM 2. PROPERTIES
United maintains executive and administrative offices at leased
premises at 18 East 48th Street, New York, N.Y., which lease expires
in December 1997. The following is a tabulation of the principal
properties owned or leased by United's subsidiaries as at March 1,
1996.
7
<PAGE>
Approximate
Area
in Square Owned
Location Principal Use Feet or Leased
-------- ------------- ---- ---------
1510 East First Street Machine shop, steel 194,910 Owned in
Monroe, MI fabrication, floor space fee
engineering and sales on 14.4
facilities of Detroit acres of
Stoker land (East
Building)
1426 East First Street Assembly, shipping 101,000 Owned in
Monroe, MI and administrative floor space fee
facilities of Detroit on 2.2
Stoker acres of
land (West
Building)
15290 Fifteen Mile Road Foundry, 59,386 Owned in
Marshall, MI Midwest Metallurgical floor space fee
on 28.4
acres of
land
Industry Lane Manufacturing, 770,918 Owned in
Cockeysville, MD engineering floor space fee
and administrative on 92 acres
facilities of AAI of land
Gilroy Road Additional 66,400 Leased to
Hunt Valley, MD manufacturing and (Building April 22,
engineering 200) 1999
facilities of AAI
1701 Pollitt Drive Administrative, 30,000 Leased to
Fair Lawn, NJ engineering and June 30,
manufacturing 2001
facilities
of Symtron
1505 East Warner Avenue Manufacturing, 145,000 Leased to
Santa Ana, CA engineering and January
administrative 31, 1997
facilities
of ACL Technologies
2801 Professional Parkway Manufacturing, 71,142 Leased to
Ocoee, FL engineering and July 31,
administrative 1996
facilities of AAI
1035 Semoran Boulevard Sales office 900 Leased to
Winter Park, FL for Symtron April 30,
1997
5400 S. Kilbourn Avenue Manufacturing and 45,000 Owned in
Chicago, IL administrative fee
facilities of Neo
For information with respect to obligations for lease rentals, see
Note 9 of the Notes to Financial Statements in the Annual Report,
which Note is incorporated herein by reference. United considers its
properties to be suitable and adequate for its present needs. The
properties are being fully utilized.
8
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company, along with numerous other parties, has been named in five
tort actions relating to environmental matters based on allegations
partially related to a predecessor's operations. These tort actions
seek recovery for personal injury and property damage among other
damages. One tort claim is a certified property and medical class
action.
The Company owned and operated a small facility at a site in the State
of Arizona that manufactured semi-conductors between 1959 and 1960.
All such operations of the Company were sold by 1961. Although this
facility may have used trichloroethylene ("TCE") in small quantities,
there is no evidence that this facility released or disposed of TCE at
this site.
On May 18, 1993, the State of Arizona filed suit against the Company
seeking the recovery of investigative costs, injunctive relief to
require the Company to perform a Remedial Investigation and
Feasibility Study ("RI/FS"), and ultimately to require the remediation
of alleged soil and groundwater contamination at and near a certain
industrial site. Since then the State has brought in co-defendants
whose operations at the site were substantially larger than those of
the Company.
On June 20, 1995 the Company and the State of Arizona executed an
agreement in principle to settle the litigation. In exchange for a
full release from liability by the State and the Arizona Department of
Environmental Quality, the Company, without admitting liability, has
agreed to the following:
* Undertake and pay for the costs of an RI/FS Work Plan, estimated
at $1,300,000.
* Pay $125,000 towards past costs incurred by the State of Arizona
and the Department of Environmental Quality.
* Pay $125,000 towards costs of future remediation and clean-up of
the site. In addition, at the time the State selects a remedy,
the Company agrees to an additional contribution in the amount of
a percentage of the total estimated clean-up cost not to exceed
an additional $1,120,000.
* The Company reserves all rights to seek contribution from other
responsible parties.
The Company and the State have signed a Consent Decree and Work Plan
incorporating these terms and conditions. The Consent Decree has been
lodged with the United States District Court for the District of
Arizona for a 30-day public comment period, at the conclusion of which
the parties will seek court approval of the settlement. Resolution of
this matter will not have a materially adverse effect on the
consolidated financial position of the Company. The Company has
provided approximately $1,900,000 based on estimates of the total cost
for the RI/FS, estimates of amounts specified for past costs and
estimates of future remediation and clean-up costs.
9
<PAGE>
On February 11, 1992 a complaint was filed against the Company and ten
other named and ten unnamed entities in the Maricopa County Superior
Court of Arizona by seven individuals seeking to represent a class. A
class in excess of 10,000 was originally alleged. The plaintiffs have
amended their complaint to separate the larger property damage and
medical monitoring classes into smaller subclasses based on geographic
location and alleged exposure to solvents. In the process of
amendment, the overall sizes of the respective classes have been
significantly reduced. This suit alleges that the members of the
class have been exposed to contaminated groundwater in the Phoenix/
Scottsdale, Arizona area and suffer increased risk of disease and
other physical effects. They also assert property damages under
various theories; seek to have certain scientific studies performed
concerning health risks, preventative measures and long-term effects;
and seek incidental and consequential damages, punitive damages and an
injunction against actions causing further exposures. The property
and medical classes recently were certified. The Company has joined
with the other defendants and appealed the class certification issue
to the Arizona Supreme Court. The Company intends to vigorously
contest these actions and believes that the resolution of these
actions will not be material to the Company.
Four additional lawsuits were filed on April 7, 1993, December 20,
1993, June 10, 1994 and July 18, 1995 in the Maricopa County Superior
Court of Arizona. These matters allege personal injury and wrongful
death by multiple plaintiffs arising from the alleged contamination in
the Phoenix/Scottsdale, Arizona area. The Company intends to
aggressively defend against these claims; however, at this time, no
estimate can be made as to the amount or range of potential loss, if
any, to the Company with respect to these matters. In comparison to
the other defendants, the operations of the Company were very limited
in time and size.
In January 1993, Detroit Stoker was named a third-party defendant in
four lawsuits pending in the United States District Court for the
Northern District of Ohio. The third-party plaintiffs are ship owners
who have been sued by Great Lakes maritime workers who allege personal
injuries and disease as a result of exposure to asbestos while working
aboard the ships. The ship owners claim that Detroit Stoker and other
suppliers to the ship owners furnished products, supplies or
components of the ships that contained asbestos. These cases are now
consolidated in the multi-district litigation proceeding currently
pending in the United States District Court in Philadelphia. Detroit
Stoker intends to aggressively defend these claims, however, at this
time, no estimate can be made as to the amount or range of potential
loss, if any, to Detroit Stoker with respect to this action.
Detroit Stoker was notified in March 1992 by the Michigan Department of
Natural Resources (MDNR) that it is a potentially responsible party in
connection with the clean-up of a former industrial landfill located in
Port of Monroe, Michigan. MDNR is treating the Port of Monroe landfill site
as a contaminated facility within the meaning of the Michigan Environmental
Response Act (MERA), MCLA Section 299.601 et seq. Under MERA, if a
-- ---
release or a potential release of a discarded hazardous substance is or may
be injurious to the environment or to the public health, safety, or
welfare, MDNR is empowered to undertake or
10
<PAGE>
compel investigation and response activities in order to alleviate any
contamination threat. Detroit Stoker intends to aggressively defend
these claims, however, at this time, no estimate can be made as to the
amount or range of potential loss, if any, to Detroit Stoker with
respect to this action.
In May 1995, AAI Systems Management, Inc. (the "subsidiary"), an
indirect subsidiary of the Company, submitted to the U.S. Government
(the "customer") a Request for Equitable Adjustment ("REA") totaling
approximately $11,800,000 in connection with a certain contract with
the subsidiary. The REA seeks monetary damages based on costs
incurred by the subsidiary arising out of or in connection with
customer directed suspension of work and resulting schedule delays,
additional work directives, and other actions by the customer in
connection with the contract for which contractors are allowed
recovery under the Federal Acquisition Regulations. On July 14, 1995,
the subsidiary received the final decision of the customer rejecting
the REA in its entirety. To fully protect the Company's interest, on
October 10, 1995, a Notice of Appeal of the final decision was filed
with the Armed Services Board of Contract Appeals seeking monetary
damages plus interest. While the Company believes that the formal
claims asserted against the customer are meritorious and the Company
will vigorously pursue recovery of the monies claimed, the customer
has asserted substantive defenses to these claims. Because the
proceedings are currently in the discovery phase, it is not possible
at this time to determine the ultimate amount of recovery of these
costs.
The Company is involved in various other lawsuits and claims,
including certain other environmental matters, arising out of the
normal course of its business. In the opinion of management, the
ultimate amount of liability, if any, under pending litigation,
including claims described above, will not have a materially adverse
effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Annual elections are held in May to elect officers for the ensuing
year. Interim elections are held as required. Except as otherwise
indicated, each executive officer has held his current position for
the past five years.
Age at
December 31,
------------
Name Position, Office 1995
---- ---------------- ----
Richard R. Erkeneff* -- President of the Company (since 60
October 1995) and AAI (since
November 1993); Senior Vice
President of the Aerospace
Group at McDonnell Douglas
Corporation, an aerospace firm
(October 1992 to November
1993); and President (March
1992 to October 1992) and
Executive Vice President (1988
to 1992) of McDonnell Douglas
Electronics Systems Company.
Robert Worthing -- Vice President and General 50
Counsel of the Company (since
July 18, 1995); General Counsel
of AAI (since April, 1992); and
Vice President and Senior
Counsel of TRW's Space and
Defense Sector (October 1979-
January 1992).
Susan Fein Zawel* -- Vice President, Corporate 41
Communications and Associate
General Counsel (since June
1995), Secretary (since May
1994) and Counsel (1992 to
1995) of the Company; and part-
time practice of law in public
service sector (1990-1991)
James H. Perry -- Chief Financial Officer (since 34
October 25, 1995) and Treasurer
(since December 1994) of the
Company; and Senior Manager
(October 1992-November 1994)
and Manager (1988-September
1992) at Ernst & Young LLP.
James M. Ballantine, Jr.-- Acting President of Detroit 62
Stoker (since April 1995);
President of Saddle River
Partners, a consulting and
investment company (since
August 1992); and President of
Hydrotherm, Inc., a multiplant
manufacturer of boilers and air
conditioning equipment (1979 to
August 1992).
John J. Henning -- President of Symtron (since 1988). 54
Michael A. Schillaci -- President of Neo (since 1987). 48
____________________
* Member of the Company's Board of Directors
12
<PAGE>
PART II
-------
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
SECURITY HOLDER MATTERS
Reference is made to the information set forth in Note 15 of the Notes
to Financial Statements included in Item 8 of this Report concerning
dividends, stock prices, stock listing and record holders, which
information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the information set forth in the sections
entitled "Five-Year Financial Data" on page 38 of the Annual Report,
which section is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Reference is made to the information set forth in the section entitled
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" commencing on page 17 of the Annual Report,
which section is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of independent auditors and consolidated financial
statements included on pages 20 through 37 of the Annual Report are
incorporated herein by reference.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
13
<PAGE>
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the definitive proxy statement
involving the election of directors in connection with the Annual
Meeting of Stockholders of United to be held on May 14, 1996 (the
"Proxy Statement"), which section (other than the Compensation
Committee Report and Performance Graph) is incorporated herein by
reference. The Proxy Statement will be filed with the Securities and
Exchange Commission not later than 120 days after December 31, 1995,
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as
amended.
The information required with respect to executive officers is set
forth in Part I of this report under the heading "Executive Officers
of the Registrant," pursuant to instruction 3 to paragraph (b) of Item
401 of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and Performance Graph)
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Reference is made to the information to be set forth in the section
entitled "Voting Rights" and "Security Ownership of Management" in the
Proxy Statement, which sections are incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information to be set forth in the section
entitled "Election of Directors" in the Proxy Statement, which section
(other than the Compensation Committee Report and Performance Graph)
is incorporated herein by reference.
14
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) (1) and (2) - The response to this portion of Item 14 is
submitted as a separate section of this report
entitled "List of Financial Statements and
Financial Statement Schedules".
(3) Exhibits:
(3)(a)- Restated Certificate of Incorporation of United (1).
(3)(b)- Amended and Restated By-Laws of United.
(10)(a)- United Industrial Corporation 1994 Stock Option Plan (1).
(10)(b)- Purchase Agreement, dated January 18, 1994, between United and
Symtron Systems, Inc. (1).
(10)(c)- Note Purchase Agreement (the "Note Agreement") dated as of
July 15, 1992 among AAI Corporation ("AAI") and Principal
Mutual Life Insurance Company, The Travelers Insurance Company
and The Travelers Indemnity Company of Rhode Island (the
"Purchasers") (2).
(10)(d)- Guaranty Agreement (the "Note Guaranty") dated as of July 15,
1992 by United in favor of the Purchasers (2).
(10)(e)- Amendment No. 1 dated July 15, 1993 to the Note Agreement (3).
(10)(f)- Amendment No. 1 dated July 15, 1993 to the Note Guaranty (3).
(10)(g)- Amendment No. 2 to Note Agreement dated as of December 20,
1993 among AAI and the Purchasers (4).
(10)(h)- Amendment No. 3 to Note Agreement dated as of October 13, 1994
among AAI and the Purchasers (5).
(10)(i)- Amendment No. 2 to the Note Guaranty dated as of October 13,
1994 (5).
(10)(j)- Credit Agreement dated as of October 13, 1994 among AAI, the
Lenders parties thereto and First Fidelity Bank, National
Association, as Agent (the "Agent") and Issuing Bank (5).
(10)(k)- Pledge and Security Agreement dated as of October 13, 1994 by
AAI in favor of the Agent (5).
(10)(l)- Pledge and Security Agreement dated as of October 13, 1994 by
the Company in favor of the Agent (5).
15
<PAGE>
(10)(m)- Security Agreement dated as of October 13, 1994 between AAI
and the Agent (5).
(10)(n)- Security Agreement dated as of October 13, 1994 between each
subsidiary of AAI, certain subsidiaries of the Company and the
Agent (5).
(10)(o)- Guaranty dated as of October 13, 1994 by the Company and
certain of its subsidiaries and by each subsidiary of AAI in
favor of the Agent (5).
(10)(p)- Employment Agreement dated March 26, 1996, between United and
Richard R. Erkeneff.
(10)(q)- Employment Agreement, dated January 8, 1996, between United
and Susan Fein Zawel.
(10)(r)- Employment Agreement, dated February 9, 1996, between United
and James H. Perry.
(10)(s)- Severance Agreement, dated October 10, 1995, between United
and P. David Bocksch.
(11)- Computation of Earnings Per Share.
(13)- United's 1995 Annual Report to Shareholders
(21)- Subsidiaries of United.
(23)- Consent of Independent Auditors.
(27)- Financial Data Schedule.
--------------------
(1) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) Incorporated by reference to United's Quarterly Report on Form
10-Q for the quarter ended September 30, 1992.
(3) Incorporated by reference to United's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993.
(4) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1994.
(5) Incorporated by reference to United's Quarterly Report on Form
10-Q for the quarter ended September 30, 1994.
(b) - Reports on Form 8-K - United did not file any reports on
Form 8-K during the quarter ended December 31, 1995.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
UNITED INDUSTRIAL CORPORATION
(Registrant)
By: /s/ Richard R. Erkeneff
-------------------------------------
Richard R. Erkeneff, President
Date: March 26, 1996
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the date indicated.
Name Date
---- ----
/s/Harold S. Gelb March 26, 1996
---------------------------------------
Harold S. Gelb,
Chairman of the Board and Director
/s/Howard M. Bloch March 26, 1996
---------------------------------------
Howard M. Bloch,
Vice-Chairman of the Board and Director
/s/Richard R. Erkeneff March 26, 1996
---------------------------------------
Richard R. Erkeneff, President and
Chief Executive Officer and Director
/s/Myron Simons March 26, 1996
----------------------------------------
Myron Simons, Director
/s/Susan Fein Zawel March 26, 1996
----------------------------------------
Susan Fein Zawel,
Vice President and Director
/s/Edward C. Aldridge, Jr. March 26, 1996
----------------------------------------
Edward C. Aldridge, Jr., Director
/s/James H. Perry March 26, 1996
----------------------------------------
James H. Perry,
Treasurer (Principal Financial and
Accounting Officer)
17
<PAGE>
Annual Report on Form 10-K
Item 14(a) (1) and (2), (c) and (d)
List of Financial Statements and Financial Statement Schedules
Certain Exhibits
Financial Statement Schedules
Year ended December 31, 1995
United Industrial Corporation
New York, New York
<PAGE>
Form 10-K Item 14(a) (1) and (2)
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
List of Financial Statements and Financial Statement Schedules
The following consolidated financial statements of United Industrial
Corporation and subsidiaries, included in the annual report of the
registrant to its shareholders for the year ended December 31, 1995,
are incorporated by reference in Item 8:
Consolidated Balance Sheets -- December 31, 1995 and 1994
Consolidated Statements of Operations --
Years Ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
The following consolidated financial statement schedules of United
Industrial Corporation and subsidiaries are included in Item 14(d):
Schedule I Condensed Financial Information of Registrant
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and,
therefore, have been omitted.
F-2
<PAGE>
Report of Independent Auditors
BOARD OF DIRECTORS AND SHAREHOLDERS
UNITED INDUSTRIAL CORPORATION
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 1995 and
1994, and the related consolidated statements of operations and cash
flows for each of the three years in the period ended December 31,
1995. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and
schedules are the responsibility of the company's management. Our
responsibility is to express an opinion on these financial statements
and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the consolidated
financial position of United Industrial Corporation and subsidiaries
at December 31, 1995 and 1994 and the consolidated results of their
operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles. Also, in our opinion, the related financial
statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
As discussed in Notes 12 and 14 to the consolidated financial
statements, effective January 1, 1993 the Company changed its method
of accounting for postretirement benefits other than pensions and
income taxes.
ERNST & YOUNG LLP
New York, New York
February 21, 1996
F-3
<PAGE>
Schedule I - Condensed Financial Information of Registrant
United Industrial Corporation
Condensed Balance Sheets
(Dollars in thousands) December 31
1995 1994
------ ------
ASSETS
Current Assets:
Cash and cash equivalents $4,453 $5,635
Prepaid expenses and other
current assets 205 208
Deferred income taxes 6,487 3,169
------ -----
Total current assets 11,145 9,012
Equipment 342 325
Less allowances for depreciation (235) (240)
-------- --------
107 85
Other assets (principally investments
in and amounts due from
wholly-owned subsidiaries) 163,552 165,370
-------- --------
$174,804 $174,467
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities, including notes
payable of $3,000 $7,220 $ 6,899
Income taxes - 3,333
----- ------
Total current liabilities 7,220 10,232
Deferred income taxes $9,820 9,228
Other liabilities (principally
amounts due to wholly-owned
subsidiaries) 71,604 66,586
Shareholders' equity:
Common Stock 14,374 14,374
Other shareholders' equity 71,786 74,047
-------- --------
86,160 88,421
-------- --------
$174,804 $174,467
======== ========
See notes to condensed financial statements of registrant.
F-4
<PAGE>
Schedule I - Condensed Financial Information of Registrant
United Industrial Corporation
Condensed Statements of Operations
Year ended December 31
(DOLLARS IN THOUSANDS) 1995 1994 1993
------- ------ ------
Management fees from
wholly-owned subsidiaries $ 2,310 $2,064 $ 2,571
Other revenue (expense) - net (15) 150 41
------- ------ -------
2,295 2,214 2,612
Other (income) and
expenses:
Administrative Expenses 5,558 3,247 4,590
Interest income (2,277) (1,292) (364)
Interest expense 7,174 4,708 2,110
------- ------ -------
10,455 6,663 6,336
======= ====== =======
Loss before income taxes and
equity in net income of
subsidiaries (8,160) (4,449) (3,724)
Income tax benefit 2,526 1,639 933
------- ----- ------
Loss before equity in net
income of subsidiaries (5,634) (2,810) (2,791)
Equity in net income (loss)
of subsidiaries 6,522 8,022 (8,232)
------- ------ -------
Net income (loss) $ 888 $5,212 $(11,023)
======= ====== =======
Dividends paid by
subsidiaries to Parent $ 1,000 $ - $ 1,500
======= ====== =======
See notes to condensed financial statements of registrant.
F-5
<PAGE>
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
UNITED INDUSTRIAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS) Year ended December 31
1995 1994 1993
------ ------ ------
Operating activities:
Net income (loss) $ 888 $5,212 $(11,023)
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and
amortization 17 9 33
Deferred income taxes (126) (441) (680)
Undistributed (earnings)
loss of subsidiaries (5,522) (8,022) 9,732
Changes in operating assets
and liabilities:
Income taxes (3,333) 6,951 (3,618)
Prepaid expenses and other
current assets 3 732 (939)
Current liabilities 321 (616) (2,912)
Accounts with wholly-owned
subsidiaries 9,785 3,037 21,874
-------- ----- ------
Net cash provided by operating
activities: 2,033 6,862 12,467
-------- ----- ------
Investing activities:
Purchase of property and
equipment (39) (69) -
Decrease (increase) in
intercompany receivables
due to transfer of
deferred taxes from wholly-
owned subsidiaries 2,600 (3,523) 24,109
(Decrease) increase in
deferred taxes resulting
from transfer from wholly
owned subsidiaries (2,600) 3,523 (24,109)
Other, net (27) (53) -
------ -------- -------
Net cash used in investing
activities $ (66) $ (122) $ -
------ ------- -------
(Condensed Statements of Cash Flows - continued on next page)
F-6
<PAGE>
Schedule I - Condensed Financial Information of Registrant
United Industrial Corporation
Condensed Statements of Cash Flows (continued)
(DOLLARS IN THOUSANDS) YEAR ENDED DECEMBER 31
1995 1994 1993
------ ------ ------
Financing activities:
Proceeds from borrowings $9,000 $12,000 $ 9,000
Payments on borrowings (9,000) (12,000) (16,000)
Dividends paid (3,165) (2,571) (4,290)
Purchase of treasury shares - (475) -
Proceeds from exercise of
stock options 16 - -
------ ------- -------
Net cash used in financing
activities (3,149) (3,046) (11,290)
------ ------- -------
(Decrease) increase in cash and
cash equivalents (1,182) 3,694 1,177
Cash and cash equivalents at
beginning of year 5,635 1,941 764
------ ------- -------
Cash and cash equivalents at
end of year $4,453 $ 5,635 $ 1,941
====== ======= =======
See notes to condensed financial statements of registrant.
F-7
<PAGE>
A. ACCOUNTING POLICIES
BASIS OF PRESENTATION
In the parent-company-only financial statements, the Company's
investment in subsidiaries is stated at cost plus equity
in undistributed earnings of subsidiaries since the date of
acquisition. The Company's share of the net income of its
unconsolidated subsidiaries is reflected using the equity method.
Parent-company-only financial statements should be read in conjunction
with the Company's consolidated financial statements.
B. EQUITY IN NET INCOME (LOSS) OF SUBSIDIARIES
In 1993, included in the equity in net loss of subsidiaries is a
restructuring charge of $22,500,000 ($14,370,000, net of tax benefit)
regarding the Company's defense industry subsidiary. A major portion
of the charge resulted from the termination of the operations of
AAI/MICROFLITE, a manufacturer of flight simulators and training
devices, due to a lack of new orders. Also, in 1993 the Company
changed its method of accounting for postretirement benefits other
than pensions and income taxes. The implementation of these accounting
changes resulted in a cumulative effect charge against income of
$12,890,000, net of tax benefit and a cumulative effect of $13,884,000
which reduced the 1993 net loss, respectively. Consequently, the net
cumulative effect of these accounting changes resulted in a $994,000
reduction of the net loss in 1993.
F-8
<PAGE>
Schedule II -- Valuation and Qualifying Accounts
United Industrial Corporation and Subsidiaries
December 31, 1995
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
(1) (2)
CHARGED TO CHARGED TO BALANCE AT
BALANCE AT BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES (DESCRIBE) (DESCRIBE) PERIOD
----------- --------- -------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Deducted from asset account:
Allowance for doubtful accounts $ 368,000 $ 43,000 $ 101,000 (A) $ 310,000
========== ========= ============== ==========
Product warranty liability $ 525,000 $ 125,000 $ 650,000
========== ========== ==========
Year ended December 31, 1994:
Deducted from asset account:
Allowance for doubtful account $ 418,000 $ 50,000 (B) $ 368,000
========== ============== ==========
Product warranty liability $ 800,000 $ 275,000 (B) $ 525,000
========== ============== ==========
Year ended December 31, 1993:
Deducted from asset accounts:
Allowance for doubtful accounts $ 476,000 $ 41,000 $ 99,000 (A) $ 418,000
========== ========= ============== ==========
Product warranty liability $ 950,000 $ 150,000 (B) $ 800,000
========== ============== ==========
<FN>
(A) Uncollectible accounts written off, net of recoveries.
(B) Reduction of valuation account.
</FN>
</TABLE>
F-9
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Page
----------- ----
(3)(a)- Restated Certificate of Incorporation of United (1).
(3)(b)- Amended and Restated By-Laws of United.
(10)(a)- United Industrial Corporation 1994 Stock Option
Plan (1).
(10)(b)- Purchase Agreement, dated January 18, 1994, between
United and Symtron Systems, Inc. (1).
(10)(c)- Note Purchase Agreement (the "Note Agreement")
dated as of July 15, 1992 among AAI Corporation
("AAI") and Principal Mutual Life Insurance Company,
The Travelers Insurance Company and The Travelers
Indemnity Company of Rhode Island (the "Purchasers")
(2).
(10)(d)- Guaranty Agreement (the "Note Guaranty") dated as
of July 15, 1992 by United in favor of the Purchasers
(2).
(10)(e)- Amendment No. 1 dated July 15, 1993 to the Note
Agreement (3).
(10)(f)- Amendment No. 1 dated July 15, 1993 to the Note
Guaranty (3).
(10)(g)- Amendment No. 2 to Note Agreement dated as of
December 20, 1993 among AAI and the Purchasers (4).
(10)(h)- Amendment No. 3 to Note Agreement dated as of
October 13, 1994 among AAI and the Purchasers (5).
(10)(i)- Amendment No. 2 to the Note Guaranty dated as of
October 13, 1994 (5).
(10)(j)- Credit Agreement dated as of October 13, 1994
among AAI, the Lenders parties thereto and First
Fidelity Bank, National Association, as Agent
(the "Agent") and Issuing Bank (5).
(10)(k)- Pledge and Security Agreement dated as of October 13,
1994 by AAI in favor of the Agent (5).
(10)(l)- Pledge and Security Agreement dated as of October 13,
1994 by the Company in favor of the Agent (5).
<PAGE>
(10)(m)- Security Agreement dated as of October 13, 1994
between AAI and the Agent (5).
(10)(n)- Security Agreement dated as of October 13, 1994
between each subsidiary of AAI, certain subsidiaries
of the Company and the Agent (5).
(10)(o)- Guaranty dated as of October 13, 1994 by the
Company and certain of its subsidiaries and by each
subsidiary of AAI in favor of the Agent (5).
(10)(p)- Employment Agreement dated March 26, 1996,
between United and Richard R. Erkeneff.
(10)(q)- Employment Agreement, dated January 8, 1996, between
United and Susan Fein Zawel.
(10)(r)- Employment Agreement, dated February 9, 1996,
between United and James H. Perry.
(10)(s)- Severance Agreement, dated October 10, 1995, between
United and P. David Bocksch.
(11)- Computation of Earnings Per Share.
(13)- United's 1995 Annual Report to Shareholders
(21)- Subsidiaries of United.
(23)- Consent of Independent Auditors.
(27)- Financial Data Schedule.
--------------------
(1) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1993.
(2) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1992.
(3) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993.
(4) Incorporated by reference to United's Annual Report on Form
10-K for the year ended December 31, 1994.
(5) Incorporated by reference to United's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1994.
EXHIBIT 3(b)
AMENDED AND RESTATED BYLAWS
OF
UNITED INDUSTRIAL CORPORATION
(a Delaware corporation)
(As adopted by the Board of Directors
of the Corporation on November 27, 1995)
ARTICLE I
OFFICES
SECTION 1. Registered Office. The registered office of UNITED
INDUSTRIAL CORPORATION (the "Corporation") in the State of Delaware shall be at
1209 Orange Street, in the City of Wilmington, County of New Castle and its
registered agent at such address shall be The Corporation Trust Company, or such
other office or agent as the Board of Directors of the Corporation (the "Board")
shall from time to time select.
SECTION 2. Other Offices. The Corporation may also have an office
or offices, and keep the books and records of the Corporation, except as may
otherwise be required by law, at such other place or places, either within or
without the State of Delaware, as the Board may from time to time determine or
the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Place of Meeting. All meetings of the stockholders of
the Corporation shall be held at the office of the Corporation or at such other
places, within or without the State of Delaware, as may from time to time be
fixed by the Board.
SECTION 2. Annual Meetings. The annual meeting of the
stockholders for the election of directors and for the transaction of such other
business as may properly come before the meeting shall be held each year at such
date and time, within or without the State of Delaware, as the Board shall
determine.
<PAGE>
SECTION 3. Special Meetings. Except as otherwise required by law
or the Restated Certificate of Incorporation of the Corporation (the
"Certificate"), special meetings of the stockholders for any purpose or purposes
may be called by the majority of the entire Board or by stockholders holding
together at least twenty percent (20%) of all the shares of the Corporation
entitled to vote at the meeting and shall be held only for such business and at
such date and time, within or without the State of Delaware, as is specified in
the notice of any such special meeting of the stockholders.
SECTION 4. Notice of Meetings. Except as otherwise provided by
law, written notice of each meeting of the stockholders, whether annual or
special, shall be given, either by personal delivery or by mail, not less than
10 nor more than 60 days before the date of the meeting to each stockholder of
record entitled to notice of the meeting. If mailed, such notice shall be deemed
given when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
Corporation. Each such notice shall state the place, date and hour of the
meeting, and the purpose or purposes for which the meeting is called. Notice of
any meeting of stockholders shall not be required to be given to any stockholder
who shall attend such meeting in person or by proxy without protesting, prior to
or at the commencement of the meeting, the lack of proper notice to such
stockholder, or who shall sign a written waiver of notice thereof, whether
before or after such meeting. Notice of adjournment of a meeting of stockholders
need not be given if the time and place to which it is adjourned are announced
at such meeting, unless the adjournment is for more than 30 days or, after
adjournment, a new record date is fixed for the adjourned meeting.
SECTION 5. Quorum. Except as otherwise provided by law or by the
Certificate, the holders of a majority of the votes entitled to be cast by the
stockholders entitled to vote generally, present in person or by proxy, shall
constitute a quorum for the transaction of business at any meeting of the
stockholders. At all meetings of the stockholders at which a quorum is present,
all matters, except as otherwise provided by law or the Certificate, shall be
decided by the vote of the holders of a majority of the shares entitled to vote
thereat present in person or by proxy. If there be no such quorum, the holders
of a majority of such shares so present or represented may adjourn the meeting
from time to time, without further notice, until a quorum shall have been
obtained. When a quorum is once present it is not broken by the subsequent
withdrawal of any stockholder.
SECTION 6. Order of Business. (a) At each meeting of the stock-
holders, the Chairman of the Board, if any, or if none or in the absence of the
Chairman of the Board, the Vice-Chairman, if any, or if none or in the absence
of the Vice-Chairman, such person as shall be selected by the Board shall act as
chairman of
2
<PAGE>
the meeting. The order of business at each such meeting shall be as determined
by the chairman of the meeting. The chairman of the meeting shall have the right
and authority to prescribe such rules, regulations and procedures and to do all
such acts and things as are necessary or desirable for the proper conduct of the
meeting, including, without limitation, the establishment of procedures for the
maintenance of order and safety, limitations on the time allotted to questions
or comments on the affairs of the Corporation, restrictions on entry to such
meeting after the time prescribed for the commencement thereof, and the opening
and closing of the voting polls.
(b) At any annual meeting of stockholders, only such business
shall be conducted as shall have been brought before the annual meeting (i) by
or at the direction of the chairman of the meeting, (ii) pursuant to the notice
provided for in Section 4 of this Article II or (iii) by any stockholder who is
a holder of record at the time of the giving of such notice provided for in this
Section 6, who is entitled to vote at the meeting and who complies with the
procedures set forth in this Section 6.
(c) For business properly to be brought before an annual meeting
by a stockholder, the stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation (the "Secretary") and
such business must be a proper matter for stockholder action under the Delaware
General Corporation Law ("DGCL"). To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 60 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made. To
be in proper written form, a stockholder's notice to the Secretary shall set
forth in writing as to each matter the stockholder proposes to bring before the
annual meeting: (i) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting; (ii) the name and address of the stockholder proposing such
business and all persons or entities acting in concert with the stockholder;
(iii) the class and number of shares of the Corporation which are beneficially
owned by the stockholder and all persons or entities acting in concert with such
stockholder; and (iv) any material interest of the stockholder in such business.
The foregoing notice requirements shall be deemed satisfied by a stockholder if
the stockholder has notified the Corporation of his or her intention to present
a proposal at an annual meeting and such stockholder's proposal has been
included in a proxy statement that has been prepared by management of the
Corporation to solicit proxies
3
<PAGE>
for such annual meeting; provided, however, that if such stockholder does not
appear or send a qualified representative to present such proposal at such
annual meeting, the Corporation need not present such proposal for a vote at
such meeting, notwithstanding that proxies in respect of such vote may have been
received by the Corporation. Notwithstanding anything in the Bylaws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 6. The chairman of an
annual meeting shall, if the facts warrant, determine that business was not
properly brought before the annual meeting in accordance with the provisions of
this Section 6 and, if the chairman should so determine, the chairman shall so
declare to the annual meeting and any such business not properly brought before
the annual meeting shall not be transacted.
SECTION 7. List of Stockholders. It shall be the duty of the
Secretary or other officer who has charge of the stock ledger to prepare and
make, at least 10 days before each meeting of the stockholders, a complete list
of the stockholders entitled to vote thereat, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in such stockholder's name.
SECTION 8. Voting. (a) At each meeting of stockholders, every
stockholder shall be entitled to vote in person or by proxy appointed by
instrument in writing, subscribed by such stockholder or by such stockholder's
duly authorized attorney-in-fact (but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period),
and, unless the Certificate provides otherwise, shall have one vote for each
share of stock entitled to vote registered in the name of such stockholder on
the books of the Corporation on the applicable record date fixed pursuant to
these Bylaws. At all elections of directors the voting may but need not be by
ballot and a plurality of the votes cast shall elect. Except as otherwise
required by law or the Certificate, any other action shall be authorized by a
majority of the votes cast.
(b) Any action required or permitted to be taken at any meeting
of stockholders may, except as otherwise required by law or the Certificate, be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
record of the issued and outstanding capital stock of the Corporation having a
majority of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted, and
the writing or writings are filed with the permanent records of the Corporation.
Prompt notice of the taking of corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
4
<PAGE>
SECTION 9. Inspectors. The Board, in advance of any meeting, may,
but need not, appoint one or more inspectors of election to act at the meeting
or any adjournment thereof. If an inspector or inspectors are not so appointed,
the person presiding at the meeting may, but need not, appoint one or more
inspectors. In case any person who may be appointed as an inspector fails to
appear or act, the vacancy may be filled by appointment made by the Board in
advance of the meeting or at the meeting by the person presiding thereat. Each
inspector, if any, before entering upon the discharge of his or her duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors, if any, shall determine the number of shares of stock
outstanding and the voting power of each, the shares of stock represented at the
meeting, the existence of a quorum, and the validity and effect of proxies, and
shall receive votes, ballots or consents, hear and determine all challenges and
questions arising in connection with the right to vote, count and tabulate all
votes, ballots or consents, determine the result, and do such acts as are proper
to conduct the election or vote with fairness to all stockholders. On request of
the person presiding at the meeting, the inspector or inspectors, if any, shall
make a report in writing of any challenge, question or matter determined by such
inspector or inspectors and execute a certificate of any fact found by such
inspector or inspectors.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board, which may
exercise all such powers of the Corporation and do all such lawful acts and
things as are not by law or by the Certificate directed or required to be
exercised or done by the stockholders.
SECTION 2. Number and Tenure. The Board of Directors shall be six
(6) in number, which number may be changed only pursuant to an amendment to
these Bylaws adopted by the affirmative vote of the holders of not less than
eighty percent (80%) of the outstanding shares of stock of the Corporation
entitled to vote on such amendment. Each director shall be elected to a term of
office to expire at such future annual meeting of stockholders as is appropriate
for the class of directors to which he is elected. The Board shall keep full and
fair records of its acts and proceedings and transactions. Directors need not be
stockholders.
5
<PAGE>
SECTION 3. Notification of Nomination. Nominations for the
election of directors may be made by the Board or by any stockholder who is a
stockholder of record at the time of giving of the notice of nomination provided
for in this Section 3 of this Article III and who is entitled to vote for the
election of directors. Any stockholder of record entitled to vote for the
election of directors at a meeting may nominate persons for election as
directors only if timely written notice of such stockholder's intent to make
such nomination is given, either by personal delivery or by United States mail,
postage prepaid, to the Secretary. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation (i) with respect to an election to be held at an annual meeting of
stockholders, not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting of stockholders; provided,
however, that if the date of the annual meeting is advanced more than 30 days
prior to or delayed by more than 60 days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the 10th day following the
day on which public announcement of the date of such meeting is first made and
(ii) with respect to an election to be held at a special meeting of stockholders
for the election of directors, not earlier than the 90th day prior to such
special meeting and not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day following the day on
which public announcement is first made of the date of the special meeting and
of the nominees proposed by the Board to be selected at such meeting. Each such
notice shall set forth: (i) the name and address of the stockholder who intends
to make the nomination, of all persons or entities acting in concert with the
stockholder, and of the person or persons to be nominated; (ii) a representation
that the stockholder is a holder of record of stock of the Corporation entitled
to vote at such meeting and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (iii) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or entities acting in concert with the
stockholder (naming such person or entities) pursuant to which the nomination or
nominations are to be made by the stockholder; (iv) such other information
regarding each nominee proposed by the stockholder as would have been required
to be included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission had each nominee been nominated, or intended
to be nominated, by the Board; (v) the class and number of shares of the
Corporation that are beneficially owned by the stockholder and all persons or
entities acting in concert with the stockholder; and (vi) the consent of each
nominee to being named in a proxy statement as nominee and to serve as a
director of the Corporation if so elected. The chairman of the meeting may
refuse to acknowledge the nomination of any person not made in compliance with
the foregoing procedure. Only such persons who are nominated in accordance with
the procedures
6
<PAGE>
set forth in this Section 3 of this Article III shall be eligible to serve as
directors of the Corporation.
Notwithstanding anything in the third sentence of this Section 3
of Article III to the contrary, in the event that the number of directors to be
elected to the Board is increased and there is no public announcement naming all
of the nominees for director or specifying the size of the increased Board made
by the Corporation at least 70 days prior to the first anniversary of the
preceding year's annual meeting, a stockholder's notice required by these Bylaws
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the Corporation not later than the close of
business on the 10th day following the day on which such public announcement is
first made by the Corporation.
For purposes of this section, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or a comparable national news service or in a document publicly filed by
the company with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Securities Exchange Act of 1934, as amended.
SECTION 4. Quorum and Manner of Acting. Except as otherwise
provided by law, the Certificate or these Bylaws, a majority of the entire Board
shall constitute a quorum for the transaction of business at any meeting of the
Board, and, except as so provided, the vote of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board. The chairman of the meeting or a majority of the directors present may
adjourn the meeting to another time and place whether or not a quorum is
present. At any adjourned meeting at which a quorum is present, any business may
be transacted which might have been transacted at the meeting as originally
called.
SECTION 5. Place of Meeting. The Board may hold its meetings at
such place or places within or without the State of Delaware as the Board may
from time to time determine or as shall be specified or fixed in the respective
notice or waivers of notice thereof.
SECTION 6. Annual Meeting. Following the annual meeting of
stockholders, the newly elected Board shall meet for the purpose of the election
of officers and the transaction of such other business as may properly come
before the meeting. Such meeting may be held without notice immediately after
the annual meeting of stockholders at the same place at which such stockholders'
meeting is held
7
<PAGE>
or at such other place as the Chairman of the Board, if any, or the Board shall
determine.
SECTION 7. Regular Meetings. Regular meetings of the Board shall
be held at such times and places as the Chairman of the Board, if any, or the
Board shall from time to time by resolution determine.
SECTION 8. Special Meetings. Special meetings of the Board shall
be held whenever called by the Chairman of the Board or by a majority of the
directors then in office.
SECTION 9. Notice of Meetings. Notice need not be given of
regular meetings of the Board held at times and places fixed by resolution of
the Board or of any adjourned meeting thereof. Notice of each special meeting of
the Board shall be given by overnight delivery service or mailed to each
director, in either case addressed to such director at such director's residence
or usual place of business, at least two days before the day on which the
meeting is to be held or shall be sent to such director at such place by
telegraph or telecopy or be given personally or by telephone, not later than the
day before the meeting is to be held, but notice need not be given to any
director who shall, either before or after the meeting, submit a signed waiver
of such notice or who shall attend such meeting other than for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting was not lawfully called or convened. Every such
notice shall state the time and place but need not state the purpose of the
meeting.
SECTION 10. Organization. At all meetings of the Board, the
Chairman, if any, or if none or in the Chairman's absence or inability to act,
the Vice-Chairman, if any, or if none or in the Vice-Chairman's absence or
inability to act, a chairman chosen by the directors, shall preside. The
Secretary of the Corporation shall act as secretary at all meetings of the Board
when present, and, in the Secretary's absence, the presiding officer may appoint
any person to act as secretary.
SECTION 11. Rules and Regulations. The Board may adopt such rules
and regulations not inconsistent with the provisions of law, the Certificate or
these Bylaws for the conduct of its meetings and management of the affairs of
the Corporation as the Board may deem proper.
SECTION 12. Participation in Meeting by Means of Communication
Equipment. Any one or more members of the Board or any committee thereof may
participate in any meeting of the Board or of any such committee by means of
conference telephone or similar communications equipment by means of which all
8
<PAGE>
persons participating in the meeting can hear each other, and such participation
in a meeting shall constitute presence in person at such meeting.
SECTION 13. Action without Meeting. Any action required or
permitted to be taken at any meeting of the Board or any committee thereof may
be taken without a meeting if all of the members of the Board or of any such
committee consent thereto in writing and the writing or writings are filed with
the minutes or proceedings of the Board or of such committee.
SECTION 14. Resignations. Any director of the Corporation may at
any time resign by giving written notice to the Chairman of the Board, if any,
the Vice-Chairman, if any, the President or the Secretary. Such resignation
shall take effect at the time specified therein or, if the time be not specified
therein, upon receipt thereof; and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
SECTION 15. Removal of Directors. Any director (including all
members of the Board) may be removed from office at any time, with or, except as
otherwise required by law or the Certificate, without cause, by the affirmative
vote of the holders of a majority of the voting power of all of the shares of
capital stock of the Corporation then entitled to vote generally in the election
of directors.
SECTION 16. Vacancies. Except as otherwise required by law, the
Certificate or these Bylaws, any vacancy in the Board for any reason and any
newly created directorship resulting by reason of any increase in the number of
directors may be filled only by the Board, by resolution adopted by the
affirmative vote of a majority of the remaining directors then in office, even
though less than a quorum (or by a sole remaining director); provided, however,
that if the directors then in office shall constitute less than a majority of
the whole Board (as constituted immediately prior to any such increase), upon
application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of shares of the capital stock of the Corporation at
the time outstanding having the right to vote for directors, an election to fill
any such vacancy or vacancies or newly created directorship, or to replace the
director or directors chosen by the directors then in office as aforesaid may be
held as provided in Section 223 of the DGCL. If not so filled, any such vacancy
shall be filled by the stockholders at the next annual meeting or at a special
meeting called for that purpose. Any director so appointed shall hold office
until such future annual meeting of stockholders as is appropriate for the class
of directors to which he or she is elected and until his or her successor shall
be duly elected and qualified.
9
<PAGE>
SECTION 17. Compensation. Each director, in consideration of such
person serving as a director, shall be entitled to receive from the Corporation
such amount per annum and such fees for attendance at meetings of the Board or
of committees of the Board, or both, as the Board shall from time to time
determine. In addition, each director shall be entitled to receive from the
Corporation reimbursement for the reasonable expenses incurred by such person in
connection with the performance of such person's duties as a director. Nothing
contained in this Section 17 of this Article III shall preclude any director
from serving the Corporation or any of its subsidiaries in any other capacity
and receiving proper compensation therefor.
ARTICLE IV
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Establishment of Committees of the Board of Directors.
The Board may, in accordance with and subject to the DGCL, from time to time
establish committees of the Board to exercise such powers and authorities of the
Board, and to perform such other functions, as the Board may from time to time
determine and specify in the resolution of appointment. Each committee must
consist of two or more directors of the Corporation.
SECTION 2. Procedure; Meetings; Quorum. Regular meetings of
committees of the Board, of which no notice shall be necessary, may be held at
such times and places as shall be fixed by resolution adopted by a majority of
the members thereof. Special meetings of any committee of the Board shall be
called at the request of a majority of the members thereof. Notice of each
special meeting of any committee of the Board shall be given by overnight
delivery service or mailed to each member, in either case addressed to such
member at such member's residence or normal place of business, at least two days
before the day on which the meeting is to be held or shall be sent to such
members at such place by telegraph or telecopy or be given personally or by
telephone, not later than the day before the meeting is to be held, but notice
need not be given to any member who shall, either before or after the meeting,
submit a signed waiver of such notice or who shall attend such meeting other
than for the express purpose of objecting, at the beginning of the meeting, to
the transaction of any business because the meeting was not lawfully called or
convened. Any special meeting of any committee of the Board shall be a legal
meeting without any notice thereof having been given, if all the members thereof
shall be present thereat. Notice of any adjourned meeting of any committee of
the Board need not be given. Any committee of the Board may adopt such rules and
regulations not inconsistent with the provisions of law, the Certificate or
these Bylaws for the conduct of its meetings as
10
<PAGE>
such committee of the Board may deem proper. A majority of the members of any
committee of the Board shall constitute a quorum for the transaction of business
at any meeting, and the vote of a majority of the members thereof present at any
meeting at which a quorum is present shall be the act of such committee. Each
committee of the Board shall keep written minutes of its proceedings and shall
report on such proceedings to the Board.
SECTION 3. Action by Written Consent. Any action required or
permitted to be taken at any meeting of any committee of the Board may be taken
without a meeting if all the members of the committee consent thereto in
writing, and the writing or writings are filed with the minutes of proceedings
of the committee.
SECTION 4. Term; Termination. In the event any person shall cease
to be a director of the Corporation, such person shall simultaneously therewith
cease to be a member of any committee appointed by the Board.
ARTICLE V
OFFICERS
SECTION 1. Number; Term of Office. The Board shall elect the
officers of the Corporation, which shall include a President and a Secretary,
and may include, by election or appointment, a Chairman of the Board, a
Vice-Chairman of the Board, one or more Vice-Presidents (any one or more of whom
may be given an additional designation of rank, such as "Executive
Vice-President" or "Senior Vice-President," or function), a Treasurer and such
Assistant Secretaries, such Assistant Treasurers and such other officers as the
Board may from time to time deem proper. Each officer shall have such powers and
duties as may be prescribed by these Bylaws and as may be assigned by the Board
or the President. Any two or more offices may be held by the same person. The
Board may from time to time authorize any officer to appoint and remove any such
other officers and agents and to prescribe their powers and duties. The Board
may require any officer or agent to give security for the faithful performance
of such person's duties.
SECTION 2. Term of Office; Removal; Remuneration. Each officer
shall hold office for such term as may be prescribed by the Board and until such
person's successor shall have been chosen and shall qualify, or until such
person's death or resignation, or until such person's removal in the manner
hereinafter provided. Any officer may be removed, either with or without cause,
by the Board. The
11
<PAGE>
remuneration of each officer shall be fixed by the Board or in such manner as
the Board shall provide.
SECTION 3. Resignation. Any officer may resign at any time by
giving notice to the Board, the President or the Secretary. Any such resignation
shall take effect at the date of receipt of such notice or at any later date
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
SECTION 4. Vacancies. A vacancy in any office because of death,
resignation, removal or any other cause may be filled for the unexpired portion
of the term by the Board.
SECTION 5. Chairman of the Board; Powers and Duties. The Chairman
of the Board, if any, shall preside at all meetings of the stockholders and the
Board and shall have such other powers and duties as may from time to time be
assigned by the Board.
SECTION 6. Vice-Chairman of the Board; Powers and Duties. In case
of the absence or disability of the Chairman of the Board or a vacancy in the
office, the Vice-Chairman of the Board, if any, shall perform the duties of the
Chairman of the Board. The Vice-Chairman shall have such other powers and duties
as may from time to time be assigned by the Board.
SECTION 7. President and Chief Executive Officer. The President
shall be the chief executive officer of the Corporation and shall have general
management and supervision of the property, business and affairs of the
Corporation and over its other officers and may execute and deliver in the name
of the Corporation powers of attorney, contracts, bonds and other obligations
and instruments and shall have such other powers and perform such other duties
as customarily pertain to that office and as may be assigned by the Board or the
Chairman of the Board, if any.
SECTION 8. Vice-President; Powers and Duties. A Vice-President
may execute and deliver in the name of the Corporation powers of attorneys,
contracts, bonds and other obligations and instruments pertaining to the regular
course of the duties of said office and shall have such other powers and perform
such other duties as may be assigned by the President or the Board.
SECTION 9. Secretary and Assistant Secretary; Powers and Duties.
The Secretary shall attend all meetings of the stockholders and the Board and
shall keep the minutes for such meetings in one or more books provided for that
purpose. The
12
<PAGE>
Secretary shall be custodian of the corporate records, except those required to
be in the custody of the Treasurer or the Controller, shall keep the seal of the
Corporation, and shall execute and affix the seal of the Corporation to all
documents duly authorized for execution under seal on behalf of the Corporation,
and shall perform all of the duties incident to the office of Secretary, as well
as such other duties as may be assigned by the President or the Board.
The Assistant Secretaries shall perform such of the Secretary's
duties as the Secretary shall from time to time direct. In case of the absence
or disability of the Secretary or a vacancy in the office, an Assistant
Secretary designated by the Chairman of the Board, if any, or by the Secretary,
if the office is not vacant, shall perform the duties of the Secretary.
SECTION 10. Treasurer and Assistant Treasurers; Powers and
Duties. The Treasurer shall have care and custody of the funds and securities of
the Corporation, shall deposit such funds in the name and to the credit of the
Corporation with such depositories as the Treasurer shall approve, shall
disburse the funds of the Corporation for proper expenses and dividends, and as
may be ordered by the Board, taking proper vouchers for such disbursements, as
well as such other duties as may be assigned by the President or the Board.
The Assistant Treasurers shall perform such of the Treasurer's
duties as the Treasurer shall from time to time direct. In case of the absence
or disability of the Treasurer or a vacancy in the office, an Assistant
Treasurer designated by the Chairman of the Board, if any, or by the Treasurer,
if the office is not vacant, shall perform the duties of the Treasurer.
ARTICLE VI
INDEMNIFICATION
SECTION 1. Scope of Indemnification. (a) Each person who was or
is made a party or is threatened to be made a party to or is otherwise involved
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or she
is or was a director, officer, employee or agent of the Corporation or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to an employee benefit plan
(hereinafter an "indemnitee"), whether the basis of such proceeding is alleged
action in an official capacity as a director, officer, employee or
13
<PAGE>
agent or in any other capacity while serving as a director, officer, employee or
agent, shall be indemnified and held harmless by the Corporation to the fullest
extent authorized by the DGCL, as the same exists or may hereafter be amended
(but, in the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than permitted
prior thereto), against all expense, liability and loss (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 3 of this Article VI with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board.
(b) If an indemnitee is not entitled to indemnification with
respect to a portion of any liabilities to which such person may be subject, the
Corporation shall nonetheless indemnify such indemnitee to the maximum extent
for the remaining portion of the liabilities.
(c) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the indemnitee is not entitled
to indemnification.
(d) To the extent permitted by law, the payment of
indemnification provided for by this Article, including the advancement of
expenses pursuant to Section 2 of this Article VI, with respect to proceedings
other than those brought by or in the right of the Corporation, shall be subject
to the conditions that the indemnitee shall give the Corporation prompt notice
of any proceeding, that the Corporation shall have complete charge of the
defense of such proceeding and the right to select counsel for the indemnitee,
and that the indemnitee shall assist and cooperate fully in all matters
respecting the proceeding and its defense or settlement. The Corporation may
waive any or all of the conditions set forth in the preceding sentence. Any such
waiver shall be applicable only to the specific payment for which the waiver is
made and shall not in any way obligate the Corporation to grant such waiver at
any future time. In the event of a conflict of interest between the indemnitee
and the Corporation that would disqualify the Corporation's counsel from
representing the indemnitee under the rules of professional conduct applicable
to attorneys, it shall be the policy of the Corporation to waive any or all of
the foregoing conditions subject to such limitations or conditions as the
Corporation shall deem to be reasonable in the circumstances.
14
<PAGE>
SECTION 2. Advancing Expenses. The right to indemnification
conferred in Section 1 of this Article VI shall include the right to be paid by
the Corporation the expenses incurred in defending any proceeding for which such
right to indemnification is applicable in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if required
by the DGCL, an advancement of expenses incurred by an indemnitee in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such indemnitee, including, without limitation,
service to an employee benefit plan) shall be made only upon delivery to the
Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of
such indemnitee, to repay all amounts so advanced if it shall ultimately be
determined by final judicial decision from which there is no further right to
appeal (hereinafter a "final adjudication") that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise. No advance
shall be made by the Corporation if a determination is reasonably and promptly
made by a majority vote of disinterested directors, even if the disinterested
directors constitute less than a quorum, or (if such a quorum is not obtainable
or, even if obtainable, a quorum of disinterested directors so directs) by
independent legal counsel in a written opinion, that, based upon the facts known
to the Board or counsel at the time such determination is made, the indemnitee
has acted in such a manner as to permit or require the denial of indemnification
pursuant to the provisions of Section 1 of this Article VI.
SECTION 3. Right of Indemnitee to Bring Suit. The rights to
indemnification and to the advancement of expenses conferred in Sections 1 and 2
of this Article VI shall be contract rights. If a claim under Sections 1 and 2
of this Article VI is not paid in full by the Corporation within sixty days
after a written claim has been received by the Corporation, except in the case
of a claim for an advancement of expenses, in which case the applicable period
shall be twenty days, the indemnitee may at any time thereafter bring suit
against the Corporation to recover the unpaid amount of the claim. If successful
in whole or in part in any such suit, or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In any suit brought by (a) the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that the
indemnitee has not met the applicable standard of conduct; and (b) the
Corporation to recover an advancement of expenses pursuant to the terms of an
undertaking, the Corporation shall be entitled to recover such expenses upon a
final adjudication that the indemnitee has not met any applicable standard for
indemnification set forth in the DGCL. Neither the failure of the Corporation
(including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
15
<PAGE>
suit that indemnification of the indemnitee is proper in the circumstances
because the indemnitee has met the applicable standard of conduct set forth in
the DGCL, nor an actual determination by the Corporation (including its board of
directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Section or otherwise shall be on the
Corporation.
SECTION 4. Non-Exclusivity of Rights. The rights to
indemnification and to the advancement of expenses conferred in this Article VI
shall not be exclusive of any other right which any person may have or hereafter
acquire under any statute, the Certificate, bylaw, agreement, vote of
stockholders or disinterested directors or otherwise.
SECTION 5. Insurance, Contracts and Funding. The Corporation may
purchase and maintain insurance to protect itself and any indemnitee against any
expenses, judgments, fines and amounts payable as specified in this Article VI,
to the fullest extent permitted by applicable law as then in effect. The
Corporation may enter into contracts with any indemnitee in furtherance of the
provisions of this Article VI and may create a trust fund, grant a security
interest or use other means (including, without limitation, a letter of credit)
to ensure the payment of such amounts as may be necessary to effect
indemnification as provided in this Article VI.
SECTION 6. Effects of Amendments. Neither the amendment or repeal
of, nor the adoption of a provision inconsistent with, any provision of this
Article VI (including, without limitation, this Section 6) shall adversely
affect the rights of any indemnitee under this Article VI with respect to any
proceeding commenced or threatened prior to such amendment, repeal or adoption
of an inconsistent provision.
SECTION 7. Severability. If any provision or provisions of this
Article VI shall be held to be invalid, illegal or unenforceable for any reason
whatsoever: (a) the validity, legality and enforceability of the remaining
provisions of this Article VI (including, without limitation, all portions of
any paragraph of this Article VI containing any such provision held to be
invalid, illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and (b) to
the fullest extent possible, the provisions of this Article VI (including,
without limitation, all portions of any paragraph of this Article VI
16
<PAGE>
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall be construed so as
to give effect to the intent manifested by the provision held invalid, illegal
or unenforceable.
ARTICLE VII
CAPITAL STOCK
SECTION 1. Share Ownership. (a) Holders of shares of stock of the
Corporation shall be recorded on the books of the Corporation and ownership of
such stock shall be evidenced by a certificate or other form as shall be
approved by the Board. Certificates representing shares of stock of each class
shall be signed by, or in the name of, the Corporation by the President or any
Vice President and by the Secretary or any Assistant Secretary or the Treasurer
or any Assistant Treasurer of the Corporation, and sealed with the seal of the
Corporation, which may be a facsimile thereof. Any or all such signatures and
the signatures of any transfer agent or registrar may be facsimiles. Although
any officer, transfer agent or registrar whose manual or facsimile signature is
affixed to such a certificate ceases to be such officer, transfer agent or
registrar before such certificate has been issued, the certificate may
nevertheless be issued by the Corporation with the same effect as if such
officer, transfer agent or registrar were still such at the date of its issue.
(b) The stock ledger and blank share certificates shall be kept
by the Secretary or by a transfer agent or by a registrar or by any officer or
agent designated by the Board.
SECTION 2. Transfer of Shares. Transfers of shares of stock of
each class of the Corporation shall be made only on the books of the Corporation
by the holder thereof, or by such holder's attorney thereunto authorized by a
power of attorney duly executed and filed with the Secretary or a transfer agent
for such stock, if any, and on surrender of the certificate or certificates, if
any, for such shares properly endorsed or accompanied by a duly executed stock
transfer power (or by proper evidence of succession, assignment or authority to
transfer) and the payment of any taxes thereon; provided, however, that the
Corporation shall be entitled to recognize and enforce any lawful restriction on
transfer.
SECTION 3. Registered Stockholders and Addresses of Stockholders.
(a) The Corporation shall be entitled to recognize the exclusive right of a
person registered on its records as the owner of shares of stock to receive
dividends and to vote as such owner, and shall not be bound to recognize any
equitable or other claim
17
<PAGE>
to, or interest in, such share or shares of stock on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by applicable law.
(b) Each stockholder shall designate to the Secretary or transfer
agent of the Corporation an address at which notices of meetings and all other
corporate notices may be delivered or mailed to such person, and, if any
stockholder shall fail to designate such address, corporate notices may be
delivered to such person by mail directed to such person at such person's post
office address, if any, as the same appears on the stock record books of the
Corporation or at such person's last known post office address.
SECTION 4. Lost, Stolen, Destroyed and Mutilated Certificates.
The Corporation may issue to any holder of shares of stock the certificate for
which has been lost, stolen, destroyed or mutilated a new certificate or
certificates for shares, upon the surrender of the mutilated certificate or, in
the case of loss, theft or destruction of the certificate, upon satisfactory
proof of such loss, theft or destruction. The Board, or a committee designated
thereby, or the transfer agents and registrars for the stock, may, in their
discretion, require the owner of the lost, stolen or destroyed certificate, or
such person's legal representative, to give the Corporation a bond in such sum
and with such surety or sureties as they may direct to indemnify the Corporation
and said transfer agents and registrars against any claim that may be made on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
SECTION 5. Regulations. The Board may make such additional rules
and regulations as it may deem expedient concerning the issue and transfer of
certificates representing shares of stock of each class of the Corporation and
may make such rules and take such action as it may deem expedient concerning the
issue of certificates in lieu of certificates claimed to have been lost,
destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of Stockholders of
Record. (a) In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board may fix, in advance, a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting. If no
record date is fixed by the Board, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held. A determination of stockholders
18
<PAGE>
entitled to notice of or to vote at a meeting of the stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board may fix a new
record date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the Board
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted by the Board, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board to fix a record
date. The Board shall promptly, but in all events within 10 days after the date
on which such a request is received, adopt a resolution fixing the record date.
If no record date has been fixed by the Board within 10 days of the date on
which such a request is received, the record date for determining stockholders
entitled to consent to corporate action in writing without a meeting, when no
prior action by the Board is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, its principal place of business, or any officer or agent
of the Corporation having custody of the books in which proceedings of meetings
of stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board and prior action by the
Board is required by applicable law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the board adopts
the resolution taking such prior action.
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted and
which record date shall be not more than 60 days prior to such action. If no
record date is fixed, the record date for determining stockholders for any such
purpose shall be at the close of business on the day on which the Board adopts
the resolution relating thereto.
SECTION 7. Transfer Agents and Registrars. The Board may appoint,
or authorize any officer or officers to appoint, one or more transfer agents and
one or more registrars.
19
<PAGE>
ARTICLE VIII
DIVIDENDS
Subject always to the provisions of law and the Certificate, the
Board shall have full power to determine whether any, and, if any, what part of
any, funds legally available for the payment of dividends shall be declared as
dividends and paid to stockholders; the division of the whole or any part of
such funds of the Corporation shall rest wholly within the lawful discretion of
the Board, and it shall not be required at any time, against such discretion, to
divide or pay any part of such funds among or to the stockholders as dividends
or otherwise; and before payment of any dividend, there may be set aside out of
any funds of the Corporation available for dividends such sum or sums as the
Board from time to time, in its absolute discretion, thinks proper as a reserve
or reserves to meet contingencies, or for equalizing dividends, or for repairing
or maintaining any property of the Corporation, or for such other purpose as the
Board shall think conducive to the interest of the Corporation, and the Board
may modify or abolish any such reserve in the manner in which it was created.
ARTICLE IX
CORPORATE SEAL
The Board shall provide a corporate seal which shall have
inscribed thereon the name of the Corporation and the year of its incorporation,
and shall be in such form and contain such other words and/or figures as the
Board shall determine. The corporate seal may be used by printing, engraving,
lithographing, stamping or otherwise making, placing or affixing, or causing to
be printed, engraved, lithographed, stamped or otherwise made, placed or
affixed, upon any paper or document, by any process whatsoever, an impression,
facsimile or other reproduction of said corporate seal.
20
<PAGE>
ARTICLE X
FISCAL YEAR
The fiscal year of the Corporation shall be fixed, and shall be
subject to change, by the Board. Unless otherwise fixed by the Board, the fiscal
year of the Corporation shall be the calendar year.
ARTICLE XI
WAIVER OF NOTICE
Whenever notice is required to be given by these Bylaws, by the
Certificate or by law, a written waiver thereof, signed by the person or persons
entitled to said notice, whether before or after the time stated therein, shall
be deemed equivalent to notice.
ARTICLE XII
BANK ACCOUNTS, DRAFTS, CONTRACTS, ETC.
SECTION 1. Bank Accounts and Drafts. In addition to such bank
accounts as may be authorized by the Board, the primary financial officer or any
person designated by said primary financial officer, whether or not an employee
of the Corporation, may authorize such bank accounts to be opened or maintained
in the name and on behalf of the Corporation as he may deem necessary or
appropriate, payments from such bank accounts to be made upon and according to
the check of the Corporation in accordance with the written instructions of said
primary financial officer, or other person so designated by the Treasurer.
SECTION 2. Contracts. The Board may authorize any person or
persons, in the name and on behalf of the Corporation, to enter into or execute
and deliver any and all deeds, bonds, mortgages, contracts and other obligations
or instruments, and such authority may be general or confined to specific
instances.
SECTION 3. Proxies; Powers of Attorney; Other Instruments. The
Chairman, if any, the President or any other person designated by either of them
shall have the power and authority to execute and deliver proxies, powers of
attorney and other instruments on behalf of the Corporation in connection with
the rights and powers
21
<PAGE>
incident to the ownership of stock by the Corporation. The Chairman, if any, the
President or any other person authorized by proxy or power of attorney executed
and delivered by either of them on behalf of the Corporation may attend and vote
at any meeting of stockholders of any company in which the Corporation may hold
stock, and may exercise on behalf of the Corporation any and all of the rights
and powers incident to the ownership of such stock at any such meeting, or
otherwise as specified in the proxy or power of attorney so authorizing any such
person. The Board, from time to time, may confer like powers upon any other
person.
SECTION 4. Financial Reports. The Board may appoint the primary
financial officer or other fiscal officer and/or the Secretary or any other
officer to cause to be prepared and furnished to stockholders entitled thereto
any special financial notice and/or financial statement, as the case may be,
which may be required by any provision of law.
ARTICLE XIII
AMENDMENTS
The Board shall have the power to adopt, amend or repeal the
Bylaws by the affirmative vote of at least a majority of the members then in
office. Bylaws adopted by the Board may be repealed or changed, and new Bylaws
made, by the stockholders, and the stockholders may prescribe that any Bylaw
made by them shall not be altered, amended or repealed by the Board.
Notwithstanding the foregoing, however, no amendment shall alter, change or
repeal any of the provisions of Section 2 of Article III hereof unless adopted
by the affirmative vote of the holders of not less than eighty percent (80%) of
the outstanding shares of stock of the Corporation entitled to vote on such
amendment.
22
NYFS11...:\95\78495\0001\1196\BYLN035J.12A
EXHIBIT 10(p)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made this 26th day of March, 1996, by and between
UNITED INDUSTRIAL CORPORATION, a Delaware corporation having an
address at 18 East 48th Street, New York, New York 10017 (hereinafter
called "Employer"), and RICHARD R. ERKENEFF (hereinafter called
"Employee").
W I T N E S S E T H :
-------------------
In consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. Employment. Employer agrees to employ Employee and
----------
Employee agrees to serve Employer upon the terms and conditions
hereinafter set forth.
2. Term. The employment of Employee hereunder shall be
----
effective and shall commence on January 1, 1996 (the "Effective Date")
and shall terminate as of the close of business on the date three (3)
years after the Effective Date (the "Termination Date"). The period
from the Effective Date through the Termination Date is referred to as
the term of this Agreement.
3. Duties and Extent of Services. Employee agrees to serve
-----------------------------
Employer and its subsidiary companies faithfully and to the best of
his ability under the direction of the Board of Directors of Employer,
devoting his entire business time, energy and skill
<PAGE>
to his duties hereunder. The principal place of employment of
Employee shall be at the offices of AAI Corporation ("AAI"), a
subsidiary of Employer, which are currently located in Hunt Valley,
Maryland. Employee understands and agrees, however, that in
connection with his employment hereunder, he may be required from time
to time to travel on behalf of Employer.
The principal duties of Employee shall be to serve as
President and Chief Executive Officer of Employer and AAI and, in such
capacity, to render such managerial, administrative and other services
to Employer and AAI and their subsidiaries as normally are associated
with and incident to such positions as Employer from time to time may
require of him. If, during the term of this Agreement, the Board of
Directors of Employer so determines, in its absolute discretion, to
elect Employee to any additional office of Employer or its subsidiary
companies consistent with his position, or a director of Employer or
its subsidiary companies, Employee agrees to accept and serve in such
office or capacity, for no additional compensation or remuneration.
4. Compensation.
------------
(a) Salary. Employer agrees to pay (or to cause AAI
------
to pay) to Employee, as compensation for all of the services to be
rendered by Employee under or pursuant to this Agreement, a salary at
the rate of four hundred forty thousand dollars ($440,000) per annum,
commencing as of the Effective Date,
2
<PAGE>
payable in accordance with Employer's normal payroll practices. Such
salary shall be subject to annual review by Employer's Board of
Directors and, at the discretion of the Board, may be increased, but
not decreased below such amount. Employee shall also be eligible to
receive annual discretionary bonuses as may be granted by Employer's
Board of Directors, not to exceed fifty percent (50%) of his then
annual base salary.
(b) Employee Benefit Plans. During the term of this
----------------------
Agreement, Employee shall be eligible to participate in any life
insurance, medical, retirement, pension or profit-sharing, disability
or other benefit plans or arrangements now or hereafter generally made
available by Employer or AAI to executive employees of Employer or AAI
to the extent Employee qualifies under the provisions of any such
plans. Subject to the foregoing, Employer and AAI shall have the right
to change insurance companies and modify insurance policies covering
employees of Employer and AAI. Employer agrees to provide (or to
cause AAI to provide) medical coverage to Employee after retirement at
age 65 consistent with such coverage then provided to Employer's or
AAI's executive employees. Such coverage shall be provided either
through Employer's or AAI's plan or a private plan, at Employer's
option, but only if and to the extent Employee does not receive such
coverage from another source. Employer shall purchase and keep in
effect during the term of this Agreement a key man life insurance
policy with respect to Employee in the
3
<PAGE>
amount of not less than $200,000, provided that Employer is able to
obtain a policy in the amount of $5,000,000 and that Employee is
insurable at normal premium rates for such a policy. Employee shall
designate the beneficiary as to $200,000 of such policy, and Employer
shall be the beneficiary as to any portion of such policy in excess of
such amount. For purposes of Employee's participation in the AAI
Pension Plan (the "Plan"), Employee shall be deemed vested in the Plan
as of the Effective Date, provided, however, if he is not vested under
the terms of the Plan, Employer shall make (or shall cause AAI to
make) the payments to him that he otherwise would have received under
the Plan had be been vested under the terms of the Plan. This
provision shall have no impact, however, on the Plan and shall not be
deemed an amendment of the Plan. This provision shall not apply,
however, if Employee's employment by Employer is terminated prior to
the third anniversary of the Effective Date either voluntarily by him
or by Employer for cause as provided in Section 12 hereof.
(c) Stock Options. Employer shall grant to Employee
-------------
on the date hereof options to acquire 150,000 shares of common stock
of Employer pursuant to the terms of Employer's 1994 Stock Option Plan
(the "Plan") and the grant letter in the form annexed hereto as
Exhibit A. The exercise price of such options shall be equal to the
fair market value of such common stock as of the grant date. Employer
shall grant to Employee (i) one year
4
<PAGE>
after the date hereof additional options to acquire 75,000 shares and
(ii) two years after the date hereof additional options to acquire
75,000 shares, all pursuant to the Plan, provided that he is employed
hereunder on such dates. If for any reason the proposed amendment to
increase the number of shares covered by the Plan and the number of
shares subject to options any one individual may receive is not
approved by Employer's stockholders at Employer's 1996 Annual Meeting,
Employee shall not receive such additional options and a portion of
such 150,000 options granted on the date hereof shall be terminated as
provided in Exhibit A. Employer and Employee agree to consider in
good faith alternative arrangements to compensate Employee for any
such terminated options which are not granted or are terminated.
(d) Sale of House. Employer agrees to pay or
-------------
reimburse Employee for the real estate broker's commission and other
customary closing costs in connection with the sale of Employee's
house in Virginia, subject to appropriate gross-up for federal and
state income tax purposes. If Employee sells such house for less than
$408,000, Employer shall reimburse Employee for such short-fall up to
a maximum amount of $33,000.
(e) Vacation. Employee shall be entitled to four (4)
--------
weeks vacation with pay per year.
(f) Taxes. Employee understands that any and all
-----
payments described in this Agreement will be subject to such tax
5
<PAGE>
treatment as applies thereto, and to such withholding as may be
required under applicable tax laws.
5. No Competition. Employee agrees that during the term of
--------------
this Agreement he will not, within the continental United States,
directly or indirectly, engage or participate or make any financial
investments in or become employed by or render advisory or other
services to or for any person, firm or corporation, or in connection
with any business activity, other than that of Employer and its
subsidiary companies, directly or indirectly in competition with any
of the business operations or activities of Employer and its
subsidiary companies. Nothing herein contained, however, shall
restrict Employee from making any investments in any company whose
stock is listed on a national securities exchange or actively traded
in the over-the-counter market, so long as such investment does not
give him the right to control or influence the policy decisions of any
such business or enterprise which is or might be directly or
indirectly in competition with any of such business operations or
activities of Employer or any of its subsidiary companies.
6. Confidentiality; etc.
---------------------
(a) Employee will not divulge, furnish or make
accessible to anyone (other than in the regular course of business of
Employer or any of its subsidiary companies) any knowledge or
information with respect to confidential or secret methods, processes,
plans or materials of Employer or any of its
6
<PAGE>
subsidiary companies, or with respect to any other confidential or
secret aspects of the business of Employer or any of its subsidiary
companies.
(b) Employee agrees to communicate and to make known
to Employer all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented,
patentable or unpatentable which concerns in any way the business of
Employer or any of its subsidiary companies or the general industry of
which they are a part, from the time of entering upon employment until
the termination thereof, and whether acquired by Employee before or
during the term of his employment; provided, however, that nothing
-------- -------
herein shall be construed as requiring any such communication where
the method, development, invention and/or improvement is lawfully
protected from disclosure as the trade secret of a third party,
including, without limitation, any former employer of Employee or by
any other lawful bar to such communication.
(c) Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, along the lines of
the business of Employer or any of its subsidiary companies, which
Employee may conceive of or make while in the employ of Employer,
shall be and remain the property of Employer. Employee agrees
promptly to communicate and disclose all such methods, developments,
inventions and/or improvements to Employer and to execute and deliver
to Employer any instruments deemed necessary
7
<PAGE>
by Employer to effect disclosure and assignment thereof to it.
Employee further agrees, on request of Employer, to execute patent
applications based on such methods, developments, inventions and/or
improvements, including any other instruments deemed necessary by
Employer for the prosecution of such patent applications or the
acquisition of Letters Patent in the United States and/or any foreign
countries.
(d) Employee agrees that for a period of three (3)
years from and after the termination or expiration of his employment
by Employer, whether pursuant to the terms of this Agreement or
otherwise, he will not:
(i) directly or indirectly solicit, raid, entice
or induce any employee of Employer or of any of its subsidiary
companies to be employed by any person, firm or corporation which is,
directly or indirectly, in competition with the business or activities
of Employer or any of its subsidiary companies; or
(ii) directly or indirectly approach any such
employee for these purposes; or
(iii) authorize or knowingly approve the taking of
such actions by other persons on behalf of any such person, firm or
corporation, or assist any such person, firm or corporation in taking
such action; or
(iv) directly or indirectly solicit, raid, entice
or induce any person, firm or corporation (other than the
8
<PAGE>
U.S. Government or its agencies) who or which on the date hereof is,
or at any time during the period of employment hereunder shall be, a
customer of Employer or of any of its subsidiary companies to become a
customer for the same or similar products which it purchased from
Employer or any of its subsidiary companies, of any other person, firm
or corporation, and Employee shall not approach any such customer for
such purpose or authorize or knowingly approve the taking of such
actions by any other person.
(e) Employee agrees that during the term of his
employment by Employer, whether under this Agreement or otherwise, he
will not at any time enter into, on behalf of Employer or any of its
subsidiary companies, or cause Employer or any of its subsidiary com-
panies to enter into, directly or indirectly, any transactions with
any business organization in which he or any member of his immediate
family may be interested as a partner, trustee, director, officer,
employee, shareholder, lender of money or guarantor.
7. Injunctive Relief. Employee acknowledges that the
-----------------
services to be rendered by him hereunder are of a special, unique and
extraordinary character and that it would be very difficult or
impossible to replace such services and further that irreparable
injury would be sustained by Employer and its subsidiary companies in
the event of a violation by Employee of any of the provisions of this
Agreement, and by reason thereof Employee
9
<PAGE>
consents and agrees that if he violates any of the provisions of this
Agreement, Employer shall be entitled to an injunction to be issued by
any court of competent jurisdiction restraining him from committing or
continuing any violation of this Agreement.
8. Survival of Provisions. The provisions of Sections 5, 6
----------------------
and 7 hereof shall survive the termination or expiration of this
Agreement, irrespective of the reason therefor.
9. Expenses. Employer shall reimburse Employee for all
--------
reasonable expenses properly incurred by him on behalf of Employer in
the performance of his duties hereunder, provided that proper vouchers
are submitted to Employer by Employee evidencing such expenses and the
purposes for which the same were incurred.
10. Disability. If Employee shall be incapacitated by
----------
reason of mental or physical disability or otherwise during the term
of this Agreement so that he is prevented from performing his
principal duties and services hereunder for a period of three (3)
consecutive months or one or more periods aggregating three (3) months
during any twelve (12) month period, Employer shall have the right to
terminate this Agreement by sending written notice of termination to
Employee, and thereupon his employment pursuant to this Agreement
shall terminate and Employee shall be entitled to no further payments
hereunder, other than (i) for any compensation due pursuant to Section
4 hereof through the date of such termination, (ii) the reimbursement,
pursuant to Section 9
10
<PAGE>
hereof, of any expenses incurred prior to the date of such termina-
tion, and (iii) the continuation of Employee's base salary pursuant to
Section 4(a) hereof for a period of six (6) months from the date of
such termination, but not beyond the Termination Date or the date on
which Employee shall commence to receive benefits pursuant to
Employer's long term disability plan, as then in effect.
11. Death. In the event of the death of Employee during
-----
the term hereof, this Agreement shall automatically terminate and
Employer shall have no further obligations hereunder, other than to
pay to Employee's estate any compensation due pursuant to Section 4
hereof through the date of such termination and to reimburse, pursuant
to Section 9 hereof, any expenses incurred by Employee through the
date of such termination.
12. Termination by Employer for Cause. Employer shall have
---------------------------------
the right to terminate the employment of Employee under this Agreement
as well as any and all payments to be made hereunder, other than for
any compensation due pursuant to Section 4 hereof through the date of
such termination and any reimbursement, pursuant to Section 9 hereof,
of expenses incurred by Employee through the date of such termination,
if Employee shall commit any of the following acts of default:
11
<PAGE>
(i) Employee shall have committed any material
breach of any of the provisions or covenants set forth herein; or
(ii) Employee shall have committed any act of
gross negligence in the performance of his duties or obligations
hereunder; or
(iii) Employee shall have committed any material
act of dishonesty or breach of trust against Employer or any of its
subsidiary companies; or
(iv) Employee's conviction of, or plea of nolo
----
contendere to, a felony.
----------
If Employer elects to terminate this Agreement as set forth
above, Employer shall send written notice to Employee terminating this
Agreement and describing the action of Employee constituting the act
of default, and thereupon no further payments of any type shall be
made or shall be payable to Employee hereunder notwithstanding any
other provisions of this Agreement, except as set forth in the first
sentence of this Section 12.
13. No Conflicting Agreements. Employee represents and
-------------------------
warrants that he is not a party to any agreement, contract or
understanding, whether employment or otherwise, which would in any way
restrict or prohibit him from undertaking or performing employment in
accordance with the terms and conditions of this Agreement.
12
<PAGE>
14. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties with respect to the subject matter
hereof, and no statement, representation, warranty or covenant has
been made by either party except as expressly set forth herein. This
Agreement shall not be changed or terminated orally. This Agreement
supersedes and cancels all prior agreements between the parties,
whether written or oral, relating to the employment of Employee. The
Employment Agreement dated September 20, 1993 between AAI and Employee
is hereby cancelled and shall be of no further force or effect.
15. Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of the State of New
York, without regard to its conflict of laws principles.
16. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered, telecopied or mailed,
first class, postage prepaid, certified mail, return receipt
requested, to each of the parties at its or his address above written
or as set forth beneath their signatures below or at such other
address or telecopy number as either of the parties may designate in
conformity with the foregoing.
17. Section Headings. The section headings set forth in
----------------
this Agreement are for convenience only and shall not be considered as
part of this Agreement in any respect nor shall they
13
<PAGE>
in any way affect the substance of any provisions contained in this
Agreement.
18. Successors and Assigns. This Agreement shall not be
----------------------
assignable by Employee. All of the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective heirs and personal representatives of
Employee and the successors and assigns of Employer.
19. Severability. If, at any time subsequent to the date
------------
hereof, any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such
provision shall be of no force and effect, but the illegality or
unenforceability of such provision shall have no effect upon and shall
not impair the enforceability of any other provisions of this
Agreement.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
UNITED INDUSTRIAL CORPORATION
By: /s/ROBERT O. WORTHING
-------------------------------------
Name: ROBERT O. WORTHING
Title: VICE-PRESIDENT
/s/ RICHARD R. ERKENEFF
----------------------------------------
RICHARD R. ERKENEFF
Solely with respect to
Section 14 hereof:
AAI CORPORATION
By: /s/ROBERT O. WORTHING
---------------------------
Name: ROBERT O. WORTHING
Title: VICE-PRESIDENT
15
NYFS11...:\95\78495\0001\70\AGR2296M.20A
EXHIBIT 10(q)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made this 8th day of January, 1996, by and between
UNITED INDUSTRIAL CORPORATION, a Delaware corporation having an
address at 18 East 48th Street, New York, New York 10017 (hereinafter
called "Employer"), and SUSAN FEIN ZAWEL (hereinafter called
"Employee").
W I T N E S S E T H :
-------------------
In consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. Employment. Employer agrees to employ Employee and
----------
Employee agrees to serve Employer upon the terms and conditions
hereinafter set forth.
2. Term. The employment of Employee hereunder shall be
----
effective and shall commence on December 1, 1995 (the "Effective
Date") and shall terminate as of the close of business on the date
three (3) years after the Effective Date (the "Termination Date").
The period from the Effective Date through the Termination Date is
referred to as the term of this Agreement.
3. Duties and Extent of Services. Employee agrees to serve
-----------------------------
Employer and its subsidiary companies faithfully and to the best of
her ability under the direction of the Board of Directors
<PAGE>
and President of Employer, devoting her entire business time, energy
and skill to her duties hereunder. The principal place of employment
of Employee shall be at the offices of Employer which are currently
located in New York, New York. Employee understands and agrees,
however, that in connection with her employment hereunder, she may be
required from time to time to travel on behalf of Employer. If the
principal place of employment of the Employee shall change because of
a change in Employer's offices to a location which is more than 50
miles from the offices presently located in New York, New York, the
Employee shall have the option to terminate this Agreement by sending
written notice of termination to Employer, and thereupon her
employment pursuant to this Agreement shall terminate and Employee
shall be entitled to no further payments hereunder, other than (i) for
any compensation due pursuant to Section 4 hereof through the date of
such termination, (ii) the reimbursements pursuant to Section 9
hereof, of any expenses incurred prior to the date of such
termination, and (iii) the continuation of Employee's base salary
pursuant to Section 4(a) hereof for a period of six (6) months from
the date of such termination, but not beyond the Termination Date.
The principal duties of Employee shall be to serve as Vice
President-Corporate Communications, Secretary and Associate General
Counsel of Employer and, in such capacity, to render such
2
<PAGE>
managerial, administrative and other services to Employer and its
subsidiaries as normally are associated with and incident to such
positions as Employer from time to time may require of her. If,
during the term of this Agreement, the Board of Directors of Employer
so determines, in its absolute discretion, to elect Employee to any
additional office of Employer or its subsidiary companies consistent
with her position, or a director of its subsidiary companies, Employee
agrees to accept and serve in such office or capacity, as well as a
director of Employer, for no additional compensation or remuneration.
4. Compensation.
------------
(a) Salary. Employer agrees to pay to Employee, as
------
compensation for all of the services to be rendered by Employee under
or pursuant to this Agreement, a salary at the rate of one hundred and
thirty-two thousand dollars ($132,000) per annum, commencing as of the
Effective Date, payable in accordance with Employer's normal payroll
practices. Such salary shall be subject to annual review by
Employer's Board of Directors and, at the discretion of the Board, may
be increased, but not decreased below such amount. Employee shall
also be eligible to receive annual discretionary bonuses as may be
granted by Employer's Board of Directors.
(b) Employee Benefit Plans. During the term of this
----------------------
Agreement, Employee shall be eligible to participate in any
3
<PAGE>
life insurance, medical, retirement, pension or profit-sharing,
disability or other benefit plans or arrangements now or hereafter
generally made available by Employer to executive employees of
Employer to the extent Employee qualifies under the provisions of any
such plans. Subject to the foregoing, Employer shall have the right to
change insurance companies and modify insurance policies covering
employees of Employer.
(c) Automobile Allowance. Employer shall pay to
--------------------
Employee an automobile allowance of ten thousand dollars ($10,000) per
annum, commencing as of the Effective Date, payable in accordance with
Employer's normal payroll practices.
(d) Vacation. Employee shall be entitled to four (4)
--------
weeks vacation with pay per year.
(e) Taxes. Employee understands that any and all
-----
payments described in this Agreement will be subject to such tax
treatment as applies thereto, and to such withholding as may be
required under applicable tax laws.
5. No Competition. Employee agrees that during the term of
--------------
this Agreement she will not, within the continental United States,
directly or indirectly, engage or participate or make any financial
investments in or become employed by or render advisory or other
services to or for any person, firm or corporation, or in connection
with any business activity, other than that of Employer and its
subsidiary companies, directly or
4
<PAGE>
indirectly in competition with any of the business operations or
activities of Employer and its subsidiary companies. Nothing herein
contained, however, shall restrict Employee from making any
investments in any company whose stock is listed on a national
securities exchange or actively traded in the over-the-counter market,
so long as such investment does not give her the right to control or
influence the policy decisions of any such business or enterprise
which is or might be directly or indirectly in competition with any of
such business operations or activities of Employer or any of its
subsidiary companies.
6. Confidentiality; etc.
---------------------
(a) Employee will not divulge, furnish or make
accessible to anyone (other than in the regular course of business of
Employer or any of its subsidiary companies) any knowledge or
information with respect to confidential or secret methods, processes,
plans or materials of Employer or any of its subsidiary companies, or
with respect to any other confidential or secret aspects of the
business of Employer or any of its subsidiary companies.
(b) Employee agrees to communicate and to make known
to Employer all knowledge possessed by her relating to any methods,
developments, inventions and/or improvements, whether patented,
patentable or unpatentable which concerns in any way the business of
Employer or any of its subsidiary companies or
5
<PAGE>
the general industry of which they are a part, from the time of
entering upon employment until the termination thereof, and whether
acquired by Employee before or during the term of her employment;
provided, however, that nothing herein shall be construed as requiring
-------- -------
any such communication where the method, development, invention and/or
improvement is lawfully protected from disclosure as the trade secret
of a third party, including, without limitation, any former employer
of Employee or by any other lawful bar to such communication.
(c) Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, along the lines of
the business of Employer or any of its subsidiary companies, which
Employee may conceive of or make while in the employ of Employer,
shall be and remain the property of Employer. Employee agrees
promptly to communicate and disclose all such methods, developments,
inventions and/or improvements to Employer and to execute and deliver
to Employer any instruments deemed necessary by Employer to effect
disclosure and assignment thereof to it. Employee further agrees, on
request of Employer, to execute patent applications based on such
methods, developments, inventions and/or improvements, including any
other instruments deemed necessary by Employer for the prosecution of
such patent applications or the acquisition of Letters Patent in the
United States and/or any foreign countries.
6
<PAGE>
(d) Employee agrees that for a period of three (3)
years from and after the termination or expiration of her employment
by Employer, whether pursuant to the terms of this Agreement or
otherwise, she will not:
(i) directly or indirectly solicit, raid, entice
or induce any employee of Employer or of any of its subsidiary
companies to be employed by any person, firm or corporation which is,
directly or indirectly, in competition with the business or activities
of Employer or any of its subsidiary companies; or
(ii) directly or indirectly approach any such
employee for these purposes; or
(iii) authorize or knowingly approve the taking of
such actions by other persons on behalf of any such person, firm or
corporation, or assist any such person, firm or corporation in taking
such action; or
(iv) directly or indirectly solicit, raid, entice
or induce any person, firm or corporation (other than the U.S.
Government or its agencies) who or which on the date hereof is, or at
any time during the period of employment hereunder shall be, a
customer of Employer or of any of its subsidiary companies to become a
customer for the same or similar products which it purchased from
Employer or any of its subsidiary companies, of any other person, firm
or corporation, and Employee
7
<PAGE>
shall not approach any such customer for such purpose or authorize or
knowingly approve the taking of such actions by any other person.
(e) Employee agrees that during the term of her
employment by Employer, whether under this Agreement or otherwise, she
will not at any time enter into, on behalf of Employer or any of its
subsidiary companies, or cause Employer or any of its subsidiary com-
panies to enter into, directly or indirectly, any transactions with
any business organization in which she or any member of her immediate
family may be interested as a partner, trustee, director, officer,
employee, shareholder, lender of money or guarantor.
7. Injunctive Relief. Employee acknowledges that the
-----------------
services to be rendered by her hereunder are of a special, unique and
extraordinary character and that it would be very difficult or
impossible to replace such services and further that irreparable
injury would be sustained by Employer and its subsidiary companies in
the event of a violation by Employee of any of the provisions of this
Agreement, and by reason thereof Employee consents and agrees that if
she violates any of the provisions of this Agreement, Employer shall
be entitled to an injunction to be issued by any court of competent
jurisdiction restraining her from committing or continuing any
violation of this Agreement.
8
<PAGE>
8. Survival of Provisions. The provisions of Sections 5, 6
----------------------
and 7 hereof shall survive the termination or expiration of this
Agreement, irrespective of the reason therefor.
9. Expenses. Employer shall reimburse Employee for all
--------
reasonable expenses properly incurred by her on behalf of Employer in
the performance of her duties hereunder, provided that proper vouchers
are submitted to Employer by Employee evidencing such expenses and the
purposes for which the same were incurred.
10. Disability. If Employee shall be incapacitated by
----------
reason of mental or physical disability or otherwise during the term
of this Agreement so that she is prevented from performing her
principal duties and services hereunder for a period of three (3)
consecutive months or one or more periods aggregating three (3) months
during any twelve (12) month period, Employer shall have the right to
terminate this Agreement by sending written notice of termination to
Employee, and thereupon her employment pursuant to this Agreement
shall terminate and Employee shall be entitled to no further payments
hereunder, other than (i) for any compensation due pursuant to Section
4 hereof through the date of such termination, (ii) the reimbursement,
pursuant to Section 9 hereof, of any expenses incurred prior to the
date of such termination, and (iii) the continuation of Employee's
base salary pursuant to Section 4(a) hereof for a period of six (6)
months
9
<PAGE>
from the date of such termination, but not beyond the Termination Date
or the date on which Employee shall commence to receive benefits
pursuant to Employer's long term disability plan, as then in effect.
11. Death. In the event of the death of Employee during
-----
the term hereof, this Agreement shall automatically terminate and
Employer shall have no further obligations hereunder, other than to
pay to Employee's estate any compensation due pursuant to Section 4
hereof through the date of such termination and to reimburse, pursuant
to Section 9 hereof, any expenses incurred by Employee through the
date of such termination.
12. Termination by Employer for Cause. Employer shall have
---------------------------------
the right to terminate the employment of Employee under this Agreement
as well as any and all payments to be made hereunder, other than for
any compensation due pursuant to Section 4 hereof through the date of
such termination and any reimbursement, pursuant to Section 9 hereof,
of expenses incurred by Employee through the date of such termination,
if Employee shall commit any of the following acts of default:
(i) Employee shall have committed any material
breach of any of the provisions or covenants set forth herein; or
10
<PAGE>
(ii) Employee shall have committed any act of
gross negligence in the performance of her duties or obligations
hereunder; or
(iii) Employee shall have committed any material
act of dishonesty or breach of trust against Employer or any of its
subsidiary companies; or
(iv) Employee's conviction of, or plea of nolo
----
contendere to, a felony.
----------
If Employer elects to terminate this Agreement as set forth
above, Employer shall send written notice to Employee terminating this
Agreement and describing the action of Employee constituting the act
of default, and thereupon no further payments of any type shall be
made or shall be payable to Employee hereunder notwithstanding any
other provisions of this Agreement, except as set forth in the first
sentence of this Section 12.
13. No Conflicting Agreements. Employee represents and
-------------------------
warrants that she is not a party to any agreement, contract or
understanding, whether employment or otherwise, which would in any way
restrict or prohibit her from undertaking or performing employment in
accordance with the terms and conditions of this Agreement.
14. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties with respect to the subject matter
hereof, and no statement, representation, warranty or
11
<PAGE>
covenant has been made by either party except as expressly set forth
herein. This Agreement shall not be changed or terminated orally.
This Agreement supersedes and cancels all prior agreements between the
parties, whether written or oral, relating to the employment of
Employee.
15. Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of the State of New
York, without regard to its conflict of laws principles.
16. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered, telecopied or mailed,
first class, postage prepaid, certified mail, return receipt
requested, to each of the parties at its or her address above written
or as set forth beneath their signatures below or at such other
address or telecopy number as either of the parties may designate in
conformity with the foregoing.
17. Section Headings. The section headings set forth in
----------------
this Agreement are for convenience only and shall not be considered as
part of this Agreement in any respect nor shall they in any way affect
the substance of any provisions contained in this Agreement.
18. Successors and Assigns. This Agreement shall not be
----------------------
assignable by Employee. All of the terms and provisions of
12
<PAGE>
this Agreement shall be binding upon and inure to the benefit of and
be enforceable by the respective heirs and personal representatives of
Employee and the successors and assigns of Employer.
19. Severability. If, at any time subsequent to the date
------------
hereof, any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such
provision shall be of no force and effect, but the illegality or
unenforceability of such provision shall have no effect upon and shall
not impair the enforceability of any other provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
UNITED INDUSTRIAL CORPORATION
By: /s/ RICHARD R. ERKENEFF
-------------------------------------
Name: RICHARD R. ERKENEFF
Title: PRESIDENT
/s/ SUSAN FEIN ZAWEL
----------------------------------------
SUSAN FEIN ZAWEL
13
EXHIBIT 10(r)
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT made this 29th day of February, 1996, by and
between UNITED INDUSTRIAL CORPORATION, a Delaware corporation having
an address at 18 East 48th Street, New York, New York 10017
(hereinafter called "Employer"), and JAMES H. PERRY (hereinafter called
"Employee").
W I T N E S S E T H :
-------------------
In consideration of the mutual covenants hereinafter
contained, the parties hereto agree as follows:
1. Employment. Employer agrees to employ Employee and
----------
Employee agrees to serve Employer upon the terms and conditions
hereinafter set forth.
2. Term. The employment of Employee hereunder shall be
----
effective and shall commence on December 1, 1995 (the "Effective
Date") and shall terminate as of the close of business on the date two
(2) years after the Effective Date (the "Termination Date"). The
period from the Effective Date through the Termination Date is
referred to as the term of this Agreement.
3. Duties and Extent of Services. Employee agrees to serve
-----------------------------
Employer and its subsidiary companies faithfully and to the best of
his ability under the direction of the Board of Directors
<PAGE>
and President of Employer, devoting his entire business time, energy
and skill to his duties hereunder. The principal place of employment
of Employee shall be at the offices of Employer which are currently
located in New York, New York. Employee understands and agrees,
however, that in connection with his employment hereunder, he may be
required from time to time to travel on behalf of Employer. If the
principal place of employment of the Employee shall change because of
a change in Employer's offices to a location which is more than 50
miles from the offices presently located in New York, New York, the
Employee shall have the option to terminate this Agreement by sending
written notice of termination to Employer, and thereupon his
employment pursuant to this Agreement shall terminate and Employee
shall be entitled to no further payments hereunder, other than (i) for
any compensation due pursuant to Section 4 hereof through the date of
such termination, (ii) the reimbursements pursuant to Section 9
hereof, of any expenses incurred prior to the date of such
termination, and (iii) the continuation of Employee's base salary and
employee benefits pursuant to Sections 4(a) and (b) hereof for a
period of six (6) months from the date of such termination, but not
beyond the Termination Date.
The principal duties of Employee shall be to serve as
Treasurer and Chief Financial Officer of Employer and, in such
2
<PAGE>
capacity, to render such managerial, administrative and other services
to Employer and its subsidiaries as normally are associated with and
incident to such positions as Employer from time to time may require
of him. If, during the term of this Agreement, the Board of Directors
of Employer so determines, in its absolute discretion, to elect
Employee to any additional office of Employer or its subsidiary
companies consistent with his position, or a director of its
subsidiary companies, Employee agrees to accept and serve in such
office or capacity, as well as a director of Employer, for no addi-
tional compensation or remuneration.
4. Compensation.
------------
(a) Salary. Employer agrees to pay to Employee, as
------
compensation for all of the services to be rendered by Employee under
or pursuant to this Agreement, a salary at the rate of one hundred and
twenty-five thousand dollars ($125,000) per annum, commencing as of
the Effective Date, payable in accordance with Employer's normal
payroll practices. Such salary shall be subject to annual review by
Employer's Board of Directors and, at the discretion of the Board, may
be increased, but not decreased below such amount. Employee shall
also be eligible to receive annual discretionary bonuses as may be
granted by Employer's Board of Directors.
3
<PAGE>
(b) Employee Benefit Plans. During the term of this
----------------------
Agreement, Employee shall be eligible to participate in any life
insurance, medical, retirement, pension or profit-sharing, disability
or other benefit plans or arrangements now or hereafter generally made
available by Employer to executive employees of Employer to the extent
Employee qualifies under the provisions of any such plans. Subject to
the foregoing, Employer shall have the right to change insurance
companies and modify insurance policies covering employees of
Employer.
(c) Vacation. Employee shall be entitled to four (4)
--------
weeks vacation with pay per year.
(d) Taxes. Employee understands that any and all
-----
payments described in this Agreement will be subject to such tax
treatment as applies thereto, and to such withholding as may be
required under applicable tax laws.
5. No Competition. Employee agrees that during the term of
--------------
this Agreement he will not, within the continental United States,
directly or indirectly, engage or participate or make any financial
investments in or become employed by or render advisory or other
services to or for any person, firm or corporation, or in connection
with any business activity, other than that of Employer and its
subsidiary companies, directly or indirectly in competition with any
of the business operations or activities of Employer and its
subsidiary companies. Nothing herein contained,
4
<PAGE>
however, shall restrict Employee from making any investments in any
company whose stock is listed on a national securities exchange or
actively traded in the over-the-counter market, so long as such
investment does not give him the right to control or influence the
policy decisions of any such business or enterprise which is or might
be directly or indirectly in competition with any of such business
operations or activities of Employer or any of its subsidiary
companies.
6. Confidentiality; etc.
---------------------
(a) Employee will not divulge, furnish or make
accessible to anyone (other than in the regular course of business of
Employer or any of its subsidiary companies) any knowledge or
information with respect to confidential or secret methods, processes,
plans or materials of Employer or any of its subsidiary companies, or
with respect to any other confidential or secret aspects of the
business of Employer or any of its subsidiary companies.
(b) Employee agrees to communicate and to make known
to Employer all knowledge possessed by him relating to any methods,
developments, inventions and/or improvements, whether patented,
patentable or unpatentable which concerns in any way the business of
Employer or any of its subsidiary companies or the general industry of
which they are a part, from the time of entering upon employment until
the termination thereof, and
5
<PAGE>
whether acquired by Employee before or during the term of his
employment; provided, however, that nothing herein shall be construed
-------- -------
as requiring any such communication where the method, development,
invention and/or improvement is lawfully protected from disclosure as
the trade secret of a third party, including, without limitation, any
former employer of Employee or by any other lawful bar to such
communication.
(c) Any methods, developments, inventions and/or
improvements, whether patentable or unpatentable, along the lines of
the business of Employer or any of its subsidiary companies, which
Employee may conceive of or make while in the employ of Employer,
shall be and remain the property of Employer. Employee agrees
promptly to communicate and disclose all such methods, developments,
inventions and/or improvements to Employer and to execute and deliver
to Employer any instruments deemed necessary by Employer to effect
disclosure and assignment thereof to it. Employee further agrees, on
request of Employer, to execute patent applications based on such
methods, developments, inventions and/or improvements, including any
other instruments deemed necessary by Employer for the prosecution of
such patent applications or the acquisition of Letters Patent in the
United States and/or any foreign countries.
(d) Employee agrees that for a period of three (3)
years from and after the termination or expiration of his
6
<PAGE>
employment by Employer, whether pursuant to the terms of this
Agreement or otherwise, he will not:
(i) directly or indirectly solicit, raid, entice
or induce any employee of Employer or of any of its subsidiary
companies to be employed by any person, firm or corporation which is,
directly or indirectly, in competition with the business or activities
of Employer or any of its subsidiary companies; or
(ii) directly or indirectly approach any such
employee for these purposes; or
(iii) authorize or knowingly approve the taking of
such actions by other persons on behalf of any such person, firm or
corporation, or assist any such person, firm or corporation in taking
such action; or
(iv) directly or indirectly solicit, raid, entice
or induce any person, firm or corporation (other than the U.S.
Government or its agencies) who or which on the date hereof is, or at
any time during the period of employment hereunder shall be, a
customer of Employer or of any of its subsidiary companies to become a
customer for the same or similar products which it purchased from
Employer or any of its subsidiary companies, of any other person, firm
or corporation, and Employee shall not approach any such customer for
such purpose or autho-
7
<PAGE>
rize or knowingly approve the taking of such actions by any other
person.
(e) Employee agrees that during the term of his
employment by Employer, whether under this Agreement or otherwise, he
will not at any time enter into, on behalf of Employer or any of its
subsidiary companies, or cause Employer or any of its subsidiary com-
panies to enter into, directly or indirectly, any transactions with
any business organization in which he or any member of his immediate
family may be interested as a partner, trustee, director, officer,
employee, shareholder, lender of money or guarantor.
7. Injunctive Relief. Employee acknowledges that the
-----------------
services to be rendered by him hereunder are of a special, unique and
extraordinary character and that it would be very difficult or
impossible to replace such services and further that irreparable
injury would be sustained by Employer and its subsidiary companies in
the event of a violation by Employee of any of the provisions of this
Agreement, and by reason thereof Employee consents and agrees that if
he violates any of the provisions of this Agreement, Employer shall be
entitled to an injunction to be issued by any court of competent
jurisdiction restraining him from committing or continuing any
violation of this Agreement.
8
<PAGE>
8. Survival of Provisions. The provisions of Sections 5, 6
----------------------
and 7 hereof shall survive the termination or expiration of this
Agreement, irrespective of the reason therefor.
9. Expenses. Employer shall reimburse Employee for all
--------
reasonable expenses properly incurred by him on behalf of Employer in
the performance of his duties hereunder, provided that proper vouchers
are submitted to Employer by Employee evidencing such expenses and the
purposes for which the same were incurred.
10. Disability. If Employee shall be incapacitated by
----------
reason of mental or physical disability or otherwise during the term
of this Agreement so that he is prevented from performing his
principal duties and services hereunder for a period of three (3)
consecutive months or one or more periods aggregating three (3) months
during any twelve (12) month period, Employer shall have the right to
terminate this Agreement by sending written notice of termination to
Employee, and thereupon his employment pursuant to this Agreement
shall terminate and Employee shall be entitled to no further payments
hereunder, other than (i) for any compensation due pursuant to Section
4 hereof through the date of such termination, (ii) the reimbursement,
pursuant to Section 9 hereof, of any expenses incurred prior to the
date of such termination, and (iii) the continuation of Employee's
base salary and employee benefits pursuant to Sections 4(a) and (b)
hereof
9
<PAGE>
for a period of six (6) months from the date of such termination, but
not beyond the Termination Date or the date on which Employee shall
commence to receive benefits pursuant to Employer's long term
disability plan, as then in effect.
11. Death. In the event of the death of Employee during
-----
the term hereof, this Agreement shall automatically terminate and
Employer shall have no further obligations hereunder, other than to
pay to Employee's estate any compensation due pursuant to Section 4
hereof through the date of such termination and to reimburse, pursuant
to Section 9 hereof, any expenses incurred by Employee through the
date of such termination.
12. Termination by Employer for Cause. Employer shall have
---------------------------------
the right to terminate the employment of Employee under this Agreement
as well as any and all payments to be made hereunder, other than for
any compensation due pursuant to Section 4 hereof through the date of
such termination and any reimbursement, pursuant to Section 9 hereof,
of expenses incurred by Employee through the date of such termination,
if Employee shall commit any of the following acts of default:
(i) Employee shall have committed any material
breach of any of the provisions or covenants set forth herein; or
10
<PAGE>
(ii) Employee shall have committed any act of
gross negligence in the performance of his duties or obligations
hereunder; or
(iii) Employee shall have committed any material
act of dishonesty or breach of trust against Employer or any of its
subsidiary companies; or
(iv) Employee's conviction of, or plea of nolo
----
contendere to, a felony.
----------
If Employer elects to terminate this Agreement as set forth
above, Employer shall send written notice to Employee terminating this
Agreement and describing the action of Employee constituting the act
of default, and thereupon no further payments of any type shall be
made or shall be payable to Employee hereunder notwithstanding any
other provisions of this Agreement, except as set forth in the first
sentence of this Section 12.
13. No Conflicting Agreements. Employee represents and
-------------------------
warrants that he is not a party to any agreement, contract or
understanding, whether employment or otherwise, which would in any way
restrict or prohibit him from undertaking or performing employment in
accordance with the terms and conditions of this Agreement.
14. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties with respect to the subject matter
hereof, and no statement, representation, warranty or
11
<PAGE>
covenant has been made by either party except as expressly set forth
herein. This Agreement shall not be changed or terminated orally.
This Agreement supersedes and cancels all prior agreements between the
parties, whether written or oral, relating to the employment of
Employee.
15. Applicable Law. This Agreement shall be governed by,
--------------
construed and enforced in accordance with the laws of the State of New
York, without regard to its conflict of laws principles.
16. Notices. All notices, requests, demands and other
-------
communications hereunder shall be in writing and shall be deemed to
have been duly given if personally delivered, telecopied or mailed,
first class, postage prepaid, certified mail, return receipt
requested, to each of the parties at its or his address above written
or as set forth beneath their signatures below or at such other
address or telecopy number as either of the parties may designate in
conformity with the foregoing.
17. Section Headings. The section headings set forth in
----------------
this Agreement are for convenience only and shall not be considered as
part of this Agreement in any respect nor shall they in any way affect
the substance of any provisions contained in this Agreement.
18. Successors and Assigns. This Agreement shall not be
----------------------
assignable by Employee. All of the terms and provisions of
12
<PAGE>
this Agreement shall be binding upon and inure to the benefit of and
be enforceable by the respective heirs and personal representatives of
Employee and the successors and assigns of Employer.
19. Severability. If, at any time subsequent to the date
------------
hereof, any provision of this Agreement shall be held by any court of
competent jurisdiction to be illegal, void or unenforceable, such
provision shall be of no force and effect, but the illegality or
unenforceability of such provision shall have no effect upon and shall
not impair the enforceability of any other provisions of this
Agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed
this Agreement as of the day and year first above written.
UNITED INDUSTRIAL CORPORATION
By: /s/RICHARD R. ERKENEFF
-------------------------------------
Name: RICHARD R. ERKENEFF
Title: PRESIDENT
/s/ JAMES H. PERRY
----------------------------------------
JAMES H. PERRY
13
NYFS11...:\95\78495\0001\70\AGR1226J.450
EXHIBIT 10(s)
AGREEMENT
AGREEMENT, dated October 19, 1995, between UNITED INDUSTRIAL
CORPORATION, a Delaware corporation with its principal offices at 18
East 48th Street, New York, New York 10017 (the "Company"), and P.
David Bocksch ("Bocksch").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Company and Bocksch are parties to an
Employment Agreement dated March 16, 1995 (the "Employment Agreement")
pursuant to which the Company has employed Bocksch as its President
and Chief Executive Officer; and
WHEREAS, Bocksch desires to resign from all of his positions
with the Company and its subsidiaries, including his positions as
President, Chief Executive Officer, and member of the Board of
Directors of the Company; and
WHEREAS, the Company is willing to accept Bocksch's
resignation and has agreed to provide Bocksch severance benefits as
provided herein;
NOW, THEREFORE, for and in consideration of the mutual
covenants, agreements, premises and promises set forth herein, and for
other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
1. Resignation. In consideration of the terms hereof,
-----------
Bocksch's employment with the Company as President and Chief Executive
Officer, his position as a member of the Board of Directors of the
Company and his position as an officer and/or director of any
subsidiary of the Company are hereby terminated by resignation effec-
tive as of the close of business, October 18, 1995. Bocksch agrees to
execute all necessary documents which the Company may request of him
to effectuate such resignations consistent with this agreement.
2. Severance Payment. In addition to any salary payments
-----------------
owing to Bocksch through October 18, 1995 Bocksch shall receive the
following payments for the periods indicated, less any payroll
deductions required by law, which shall be in lieu of any other
payments or benefits (including vacation) to which Bocksch otherwise
might be entitled:
(a) $62,500 payable in a lump sum on the date this
Agreement is signed and returned to the Company; and
<PAGE>
(b) $125,000 payable in equal monthly installments for a
period of five (5) months commencing November 19, 1995;
and
(c) payment by the Company of Bocksch's premiums for
continuation of his coverage under the Company's group
medical policy, as it may be amended from time to time,
for himself and his eligible dependents, until the
earlier of (i) Bocksch's obtaining employment from an
employer who offers medical benefits or (ii) the
expiration of twelve (12) months after the date this
agreement is signed and returned to the Company, which
continuation coverage shall be counted towards the
Company's obligations under the Consolidated Omnibus
Budget Reconciliation Act of 1985 ("COBRA") to offer
Bocksch the opportunity to continue his medical
benefits at his own expense; and
(d) reimbursement by the Company of all reasonable business
expenses properly incurred by Bocksch in accordance
with Company policy, and upon the submission of proper
vouchers and documentation to the Company.
3. General Release of Claims. In consideration of the
-------------------------
terms hereof, Bocksch has agreed to and does hereby waive any claims
he may have for employment by the Company and has agreed not to seek
such employment or reemployment by the Company in the future. Bocksch
has further agreed to and does hereby release and forever discharge
the Company and any subsidiaries and affiliates of the Company and
their respective current and former officers, directors, shareholders,
employees and agents from any and all claims and causes of action,
known or unknown, arising out of or relating to his employment or
engagement by the Company or the termination thereof through the date
of the signing of this Agreement, including, but not limited to
wrongful discharge, breach of contract, tort, fraud, the Civil Rights
laws, Americans with Disabilities Act, Employee Retirement Income
Security Act, or any other federal, state or local law relating to
employment or discrimination in employment, or otherwise. This
release does not include Bocksch's right to enforce the terms of this
agreement.
In consideration of the terms hereof, the Company has agreed
to and does hereby release and forever discharge Bocksch from any and
all claims and causes of action, known or unknown, arising out of or
relating to his employment by the Company or the termination thereof
through the date of the signing of this Agreement. This release is
subject to Paragraph 6 hereof, and
2
<PAGE>
does not include the Company's right to enforce the terms of this
Agreement.
4. Cancellation of Employment Agreement. The Employment
------------------------------------
Agreement is hereby rescinded in its entirety and shall be of no
further force or effect, including, but not limited to, any right
Bocksch may have had to receive any stock options thereunder. All
stock options previously granted to Bocksch by the Company are hereby
terminated. Notwithstanding the immediately preceding sentence,
paragraph 6(d) (No solicitation of employees and customers) and
paragraph 7 (Injunctive Relief) of the Employment Agreement shall
remain in full force and effect for a period of twelve months after
the termination of Bocksch's employment, except that paragraph 6(d)(i)
shall apply with respect to any person, firm or corporation whether or
not in competition with the business of the Company or any of its
subsidiaries, and paragraph 6(a) (Confidentiality) of the Employment
Agreement shall remain in full force and effect as specified in the
Employment Agreement.
5. Return of Company Property. Bocksch agrees that he
--------------------------
shall promptly return to the Company all property of the Company or
its subsidiaries in his possession, custody, or control, including but
not limited to all Company cars, records, computer equipment, notes,
drawings, model documents and other materials (whether or not secret
or confidential) and all copies thereof which he has in his possession
or under his control and which he has received, prepared or otherwise
acquired during his employment with the Company and which pertain to
the affairs of the Company.
6. Bocksch's Representations. Bocksch represents and
-------------------------
warrants to the Company that: a) he has not committed any fraudulent
or illegal acts in the course of his employment with the Company; and
b) he has not violated Paragraph 6(e) of the Employment Agreement.
7. Cooperation. At the Company's request, Bocksch agrees
-----------
to assist and advise the Company with respect to matters in which he
was involved and had knowledge as an employee or director of the
Company. Such assistance and advice shall not interfere in any
material respect with any other business engagements Bocksch may have.
8. Entire Agreement. This agreement sets forth the entire
----------------
understanding of the parties and, except as otherwise provided in
paragraph 4 above, supersedes any and all prior agreements, oral or
written, relating to Bocksch's employment by the Company or the
termination thereof.
9. No modification; Successors. This agreement may not be
---------------------------
modified except by a writing, signed by Bocksch and by a
3
<PAGE>
duly authorized officer of the Company. This agreement shall be
binding upon Bocksch's heirs and personal representatives, and the
successors and assigns of the Company.
10. Governing Law. This agreement and the legal relations
-------------
among the parties hereto shall be governed by and construed in
accordance with the laws of the State of New York applicable to
contracts made and to be performed in New York without regard to New
York's conflict of laws rules.
11. Notices. All notices, requests, demands and other
-------
communications permitted or required hereunder shall refer to this
agreement and may be delivered personally, telecopied or sent
registered or certified mail, return receipt requested or by courier
service guaranteeing next-day delivery to the party at the addresses
set forth above, or such other addresses as the parties may designate
by like notice.
a) If to the Company:
United Industrial Corporation
18 East 48th Street
New York, New York 10017
Attention: Susan Fein Zawel
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Ted S. Waksman, Esq.
b) If to Bocksch:
P. David Bocksch
90 Ardmore Road
Ho-Ho-Kus, New Jersey 07423
Telecopy No.: (201) 444-6355
with a copy to:
Smiley, Schwartz & Captain
60 East 42nd Street
New York, New York 10165
Attention: Leonard Schwartz, Esq.
12. Headings. The headings contained in this
--------
agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this agreement.
4
<PAGE>
13. Voluntary Agreement. Bocksch acknowledges that before
-------------------
entering into this agreement, he had the opportunity to consult with
Leonard Schwartz, Esq. and any other attorney or advisor of his
choice, and he has been advised to do so if he chooses. Bocksch
further acknowledges that he has entered into this agreement of his
own free will, and that no promises or representations have been made
to him by any person to induce him to enter into this agreement other
than the express terms set forth herein. Bocksch further acknowledges
that he has read this agreement and understands all of its terms,
including the waiver and release of claims set forth in paragraph 3
above.
IN WITNESS WHEREOF, the parties hereto have duly executed
this agreement as of the date first above written.
UNITED INDUSTRIAL CORPORATION
By: /s/ Susan Fein Zawel
---------------------
Susan Fein Zawel
Vice President
/s/ P. David Bocksch
--------------------
P. David Bocksch
5
NYFS11...:\95\78495\0001\1156\AGR0185L.47C
EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
UNITED INDUSTRIAL CORPORATION AND SUBSIDIARIES
Year ended December 31
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary:
Weighted average shares outstanding 12,169,408 12,237,468 12,258,693
Equivalent shares--dilutive stock
options--based on treasury stock
method using average market price 23,771 4,035 -
---------- ---------- ----------
12,193,179 12,241,503 12,258,693
========== ========== ==========
Income (loss) before cumulative
effect of accounting changes $888,000 $5,212,000 $(12,017,000)
Cumulative effects as of January 1,
1993 of changes in method of
accounting for:
Postretirement benefits
other than pensions, net of
taxes - - (12,890,000)
Income taxes - - 13,884,000
----------- ----------- ------------
Net income (loss) $ 888,000 $ 5,212,000 $(11,023,000)
=========== =========== ============
Earnings (loss) per share:
Earnings (loss) per share before
cumulative effect of accounting
changes for: $ .07 $ .43 $ (.98)
Postretirement benefits
other than pension - - (1.05)
Income taxes - - 1.13
----------- ----------- ------------
Earnings (loss) per share $ .07 $ .43 $ (.90)
=========== =========== ============
</TABLE>
EXHIBIT 13
United Industrial Corporation makes
training and simulation systems,
unmanned air vehicles, automated
aircraft test and maintenance equipment,
and combat vehicles and ordnance
systems.
It manufactures ground transportation
components, automated weather reporting
systems, and specialized firefighter
training installations for domestic and
international markets.
The Company also produces energy systems
and specialized plastic products.
CONTENTS
Financial Highlights 1
- -------------------------------------------------------
Letter to Shareholders 2
- -------------------------------------------------------
Year in Review 5
- -------------------------------------------------------
Management's Discussion 17
- -------------------------------------------------------
Consolidated Financial Statements 20
- -------------------------------------------------------
Report of Independent Auditors 37
- -------------------------------------------------------
Corporate Organization 39
- -------------------------------------------------------
Corporate and Shareholder Information 40
- -------------------------------------------------------
<PAGE>
Financial Highlights
- --------------------------------------------------------------------------------
United Industrial Corporation
- --------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1995 1994
================================================================================
Net sales $ 227,398 $ 209,727
Net Income $ 888 $ 5,212
Earnings per share $ .07 $ .43
Dividends paid per share $ .26 $ .28
Shareholders' equity $ 86,160 $ 88,421
Shareholders' equity per share $ 7.08 $ 7.27
Sales backlog as of year end $ 206,000 $ 218,000
Shares outstanding 12,171,000 12,167,000
================================================================================
1
<PAGE>
To Our Shareholders
- --------------------------------------------------------------------------------
United Industrial Corporation's net income in 1995 was $888,000 (7(cents)
per share) compared with $5,212,000 (43(cents) per share) in 1994. Sales
were $227 million in 1995 compared with $210 million in 1994. Business
backlog at the end of 1995 was $206 million compared with $218 million at
the end of 1994. During the year quarterly cash dividends of 7(cents),
7(cents), 7(cents), and 5(cents) were paid, totaling 26(cents) a share.
After a long and distinguished tenure that began in 1960, Bernard Fein
retired as President and Chairman of the Board of United Industrial
Corporation. Harold S. Gelb, a private investor and a former senior partner
of Ernst & Young, was elected Chairman. In the latter part of 1995, I
accepted the position of UIC's President and Chief Executive Officer. I
will continue to serve as President and CEO of AAI Corporation, UIC's
largest subsidiary.
United Industrial Corporation in 1995 experienced a year of both
disappointment and promise. The disappointments are evident from the
figures above, which show a steep decline in earnings. Profits were
depleted by a number of charges arising largely from reserves taken on
several contracts. The primary problem is an ongoing AAI program to upgrade
four SH-60 helicopter training simulators for the U.S. Navy. This program
has a long history going back to 1991. Over the years, substantial cost
overruns have occurred principally as a result of actions by the customer,
including requests for the performance of additional work and expensive
schedule delays. We have filed a legal claim in the Armed Services Board of
Contract Appeals, seeking monetary damages plus interest. While awaiting
the outcome of this appeal, we have set aside reserves that we estimate
will be adequate to finish the program in 1998. This has resulted in a
pretax charge to 1995 earnings of approximately $6.6 million, which
includes amounts to cover the costs of consolidating our helicopter
simulator operations from Florida and North Carolina to our main facility
at Hunt Valley, Maryland. To minimize the potential financial risk on
future contracts, AAI has improved its processes for the acquisition of new
business and the management of ongoing programs.
AAI's crucial Defense Systems business increased this year despite
massive industry consolidation. There was steady growth in sales for
Pioneer unmanned air vehicles and for the widely used Moving Target
Simulator (MTS II). The value of the JointSTARS simulator project was
augmented. AAI's subsidiary Engineering Support, Inc. (ESI) had a notable
competitive win in 1995, with the attainment of a contract for support of
the Army's Gunnery Maintenance Trainer. ACL Technologies, an AAI subsidiary
that manufactures fluid test systems, garnered strong bookings and sales.
Weather Systems scored successes not only with its well-known ASOS,
which has been installed at hundreds of U.S. airports, but also with its
newer NEXWOS and ASOS II systems. The latter chalked up sales in both Saudi
Arabia and Latvia. Transportation Systems progressed towards its goal of
becoming a leading American producer of transit components, expanding its
position in both overhaul and manufacturing. However, when the Los Angeles
Transit Authority reduced by 25 percent its order for light rail cars from
Siemens Transportation Systems, it became unprofitable for AAI to produce
the car shells for this project. Consequently, in line with our
determination to ensure profitability, we agreed with Siemens to terminate
our subcontracting arrangement.
In an auspicious event this year, the International Standards
Organization granted AAI its highest level of certification, ISO 9001. This
quality standard is recognized by more than 100
2
<PAGE>
countries, and thus is vital to AAI's effort to grow its international
sales. Moreover, since the U.S. military is urging defense contractors to
use commercial standards, AAI's top ISO ranking will strengthen our
position in the increasingly competitive Department of Defense marketplace.
As for UIC's other subsidiaries, all three showed outstanding results
in 1995. For Symtron Systems, Inc., major sales of its Airport Rescue Fire
Fighter Trainers to Chicago O'Hare International Airport, Washington Dulles
International Airport, and the Helena, Montana, regional airport were the
chief contributors to a banner year. Detroit Stoker Company registered a 17
percent increase in sales, the lion's share attributable to its versatile
Hydrograte(R) stoker that can create energy from an amazing variety of
biomass fuels, ranging from paper mill wood waste to sunflower hulls.
Lastly, Neo Products, aided by new injection-molding equipment, nearly
doubled the previous year's operating income.
I am pleased to announce three important corporate appointments: James
H. Perry, UIC's Treasurer, as Chief Financial Officer; Robert W. Worthing,
an experienced member of AAI's senior management team, as UIC's Vice
President and General Counsel; and Susan Fein Zawel, UIC's Secretary and
Associate General Counsel, as Vice President Corporate Communications.
The future--1996 and beyond--holds promise for UIC. In 1995 a
comprehensive strategic plan was formulated. The plan identified the
Company's core competencies, its markets and strategies for growth. In the
near term, we will focus on increasing market share in transit, firefighter
training, and weather reporting systems while maintaining a strong position
in the defense and stoker businesses. And, of course, the overall goal is
the enhancement of shareholder value.
/s/ Richard R. Erkeneff
Richard R. Erkeneff March 3, 1996
President and Chief Executive Officer
A Message from Harold S. Gelb, Chairman of the Board
As the new Chairman of the Board of United Industrial Corporation, I
welcome this opportunity to tell you about important changes in Board
membership. Bernard Fein retired after 35 years of outstanding
contributions to UIC and was named Chairman Emeritus. I was elected
Chairman of the Board and Howard M. Bloch was elected Vice Chairman.
Following the resignations of directors Maurice Rosenthal and Rick Bierman,
we were fortunate to add to our Board Edward C. "Pete" Aldridge, Jr.,
Richard R. Erkeneff, and Susan Fein Zawel. Pete Aldridge is a former
Secretary of the Air Force and is President and CEO of The Aerospace
Corporation. Myron Simons will retire in May 1996 after years of diligent
service, and the Board has nominated as his replacement E. Donald Shapiro,
former dean and a Professor of Law at New York Law School and a director of
a number of companies, including Loral Corporation. As you can see, we have
broadened the Board with outside directors whose diverse experience and
independent judgment will help us achieve our corporate objectives. With
the Board's direction, our new President, Dick Erkeneff, and his management
team are taking actions aimed at improving the Company's financial
performance and increasing the value of your investment.
3
<PAGE>
Within the huge dome
----------------------
of a Moving Target
----------------------
Simulator, a computer [PHOTOGRAPH OMITTED]
----------------------
directs the action
----------------------
as soldiers practice
----------------------
aiming and firing
----------------------
antiaircraft missiles.
----------------------
<PAGE>
The Year in Review
- --------------------------------------------------------------------------------
AAI CORPORATION
-----------------------------------------------------------------------
For AAI, 1995 was a year in which sales were up and the company became more
profitable and competitive. But charges related to past contracts eroded
earnings.
Most serious was the charge on a single defense program that AAI was
awarded years ago. Management in 1995 set aside financial reserves that are
expected to be sufficient to offset the substantial added costs incurred on
this contract. Legal claims have been filed to recover contract
expenditures to which AAI believes it is entitled.
On the positive side, AAI in 1995 achieved the coveted ISO 9001
Certification, an internationally recognized quality standard for both
commercial and defense work. Certification will give the company an edge in
the struggle for competitive contracts. In its core Department of Defense
(DOD) business, AAI maintained leadership in computerized training
simulators and unmanned air vehicles. In the non-DOD marketplace, AAI grew
its weather monitoring business, with the introduction of an important new
product, and its transit business, with contracts for the refurbishing of
passenger rail cars. AAI's wholly owned subsidiaries, Engineering Support,
Inc. and ACL Technologies, both enhanced their market share.
Defense Systems
AAI's highly regarded computerized training simulators contribute
significantly to the company's defense sales. Designed and built-to-order
for military customers, AAI simulators provide a superior, cost-effective
way for troops to master the intricacies of sophisticated weapons systems.
An example is AAI's popular Moving Target Simulator (MTS II), which enables
trainees to practice aiming and firing antiaircraft missiles without danger
to themselves or others. Within a 40-foot-diameter dome, the MTS II
computer projects graphic images with realistic infrared signatures of
air-combat scenarios. As simulated missiles are fired, the computer records
hits and misses. MTS II systems are presently in service in the U.S. and
five other countries. A $6 million order from Japan was received in 1995
and will be delivered in 1996.
AAI's computerized training
- ------------------------------
simulators help troops master [PHOTOGRAPH OMITTED]
- ------------------------------
sophisticated weapons systems.
- ------------------------------
AAI is currently building an important new simulator for the U.S. Air
Force: the computerized maintenance trainer for the Joint Surveillance
Target Attack Radar System (JointSTARS). An airborne ground-surveillance
system, JointSTARS employs a specially equipped E-8C aircraft to monitor
troop maneuvers and other ground activity, then relays the information to a
command center. Using the JointSTARS maintenance trainer, Air Force
5
<PAGE>
technicians learn how to service the radar sensor and computers that are
the heart of the apparatus. In 1995 the Air Force expanded the AAI project
by enlarging the trainer's specifications and exercising an option for a
second one. Total value of the contract is now over $17 million.
Most of the electronic combat trainers used by the U.S. armed forces
were built by AAI; at present, two different systems are in production. The
Simulator for Electronic Combat Training, a computer-based system that
generates a synthetic electronic combat environment, is scheduled for
completion and delivery in August 1996. And the Compass Call Mission
Simulator is receiving major modification under a 1995 Air Force contract
worth $3.5 million, with an additional $4 million anticipated in 1996.
AAI is part of a team that in 1995 was awarded the first phase of an
innovative program to develop the Fire Support Combined Arms Tactics
Trainer (FSCATT), a simulator that provides tactical experience to howitzer
crews. FSCATT is an example of what many regard as the next generation in
training simulators: distributive interactive systems. Thus, howitzer crews
using FSCATT will be able to interact with soldiers using other simulator
training systems--such as drivers of simulated tanks, or pilots of
simulated airplanes--all within the same virtual reality battlefield. AAI's
share of the initial development contract is $4 million. Production
contracts will be awarded in 1996.
Pioneer UAV, Inc., a joint venture between AAI and Israel Aircraft
Industries, has had a busy year filling U.S. Navy orders for 30 of the
Pioneer unmanned air vehicles that won plaudits in the Persian Gulf War. In
September 1995, two months ahead of the scheduled delivery date to the
Navy, the men and women of the Pioneer production team at AAI proudly
rolled out the first of the 14-foot-long, 463-pound reconnaissance
aircraft. The remaining Pioneers will be delivered through September 1996.
Further orders are expected in 1996, and annual sustainment orders are
anticipated for the foreseeable future. AAI also has increased its UAV
business with contracts to augment the capabilities of the Pioneer system,
refurbish existing aircraft, provide logistical support, and produce spare
parts. Pioneer pilotless drones are now in use by the U.S. Navy and Marine
Corps, based on land and aboard ships. In addition, a test system and a
training system are operational.
AAI's Pioneer production team is
- ---------------------------------
filling U.S. Navy orders for the [PHOTOGRAPH OMITTED]
- ---------------------------------
unmanned air vehicles that won
- ---------------------------------
plaudits in the Persian Gulf War.
- ---------------------------------
6
<PAGE>
The complex internal
--------------------
components of this
--------------------
Pioneer unmanned air [PHOTOGRAPH OMITTED]
--------------------
vehicle are checked
--------------------
out meticulously by
--------------------
an experienced AAI
--------------------
production team.
--------------------
<PAGE>
Skilled technicians
--------------------
calibrate sensors [PHOTOGRAPH OMITTED]
--------------------
for AAI's Next
--------------------
Generation Weather
--------------------
Observation System.
--------------------
<PAGE>
ESI
Engineering Support, Inc. (ESI), a wholly owned AAI subsidiary with nearly
300 employees, enjoyed an outstanding year in 1995, with over $21 million
in sales and higher earnings. ESI markets on-site logistical support for
government-owned equipment, especially simulation systems. The subsidiary
scored a major win in 1995, overcoming competition to capture a $15.4
million contract from the U.S. Army's Simulation Training and
Instrumentation Command for support of Gunnery Maintenance Trainers. ESI
also won 1995 contracts for logistical support of the Air Force's EF/F-111
flight simulator at Cannon Air Force Base, New Mexico, and SIMNET, the
simulation networking system headquartered at Fort Knox, Kentucky, and
deployed worldwide.
ACL Technologies
AAI's Santa Ana, California, subsidiary, ACL Technologies, a leading
producer of hydraulic test equipment for the commercial aviation market and
the Department of Defense, had an excellent year with sales of $13.8
million, up 35 percent from 1994. Now underway is a project for the
automation of Hamilton Standard's facility for producing fuel controls for
jet aircraft. Domestically 1995 orders included contracts from American
Airlines, Moog, and Aeroquip, the world's largest manufacturer of pressure
hoses. International orders, about a third of total business, came from
Korea, Brunei, Turkey, Indonesia, Singapore, United Kingdom, South Africa,
Brazil, and China.
Weather Systems
In 1995 AAI deployed 148 additional Automated Surface Observing Systems
(ASOS) at the nation's airports, as specified by the company's recently
restructured contract with the National Oceanographic and Atmospheric
Administration (NOAA). Nearly 700 airports now have ASOS installations. The
revised contract extends the NOAA-funded program to run through 1997 and
increases its total value by $10 million. AAI is also actively pursuing
several other ASOS markets and has booked 15 sales to the U.S. Air Force
for 1996.
AAI is proud of ASOS. Designed and assembled at the company's Hunt
Valley, Maryland, facility, it has proved its effectiveness under the most
severe climatic conditions on the planet. In 1995 AAI shipped two systems
for Greenland--the fifth and sixth systems to be installed there--and the
Navy has already set up two systems in Antarctica. Repeat orders for ASOS
from such demanding locations attest to the reliability and durability of
the product.
AAI's newly introduced Next Generation Weather Observation System
(NEXWOS) meets the need for a technologically advanced but lower-priced
product. The cost advantage of NEXWOS makes it especially attractive for
smaller airports, heliports, and offshore oil platforms. During its first
year, NEXWOS was certified by the Federal Aviation Administration and won
contracts from customers in North Carolina, Tennessee, Kentucky, Louisiana,
Virginia,
9
<PAGE>
South Dakota, and Connecticut. Preliminary indications are that sales will
grow significantly in 1996.
ASOS II, an international version of NEXWOS, was successfully launched
in 1995 with a 22-system sale to Saudi Arabia and a contract from Latvia
for Riga International Airport. ASOS II was displayed at the World
Meteorological Organization Conference in Geneva and also at the Paris Air
Show.
Transportation Systems
AAI's transportation subsidiary, Electric Transit, Inc. (ETI), has
fulfilled the first phase of its contract to produce a fleet of 61 electric
trolley buses for the Miami Valley Regional Transit Authority in Dayton,
Ohio. A joint venture between AAI and a Czech Republic firm, SKODA, ETI
accomplished the on-time delivery of three production prototype trolley
buses. These nonpolluting vehicles are funded in large part by Federal
Transit Administration clean air funds. After customer evaluation and
approval, full-scale production will begin in late spring 1996. Meanwhile,
ETI is competing for a sizable trolley contract to be awarded by San
Francisco in 1996 and is seeking other opportunities elsewhere in the U.S.
market.
AAI transportation is expanding
- -------------------------------
its position in both transit [PHOTOGRAPH OMITTED]
- -------------------------------
overhaul and manufacturing.
- -------------------------------
During 1995 AAI's transportation division expanded its position in
both transit overhaul and transit manufacturing. This work requires precise
heavy fabrication and welding skills that AAI has perfected over the years
while working on Department of Defense hardware.
In transit overhaul, a $2.4 million contract to refurbish 28 MARC II
heavy rail cars for the Maryland Department of Transportation commuter rail
service was successfully completed as scheduled. Another transit project
now in progress calls for the repair of 111 trucks--the assembly to which
train axles and wheels are attached--for Maryland's light rail system that
connects Baltimore and its suburbs.
In transit manufacturing, AAI is fabricating a large number of trucks
and bolster beams for the Southeast Pennsylvania Transit Authority under a
$4.1 million contract from ABB Australia. The new heavy commuter rail cars
will serve Philadelphia on the Market-Frankford subway.
Another manufacturing project, to produce 18 new light rail cars for
Maryland's Central Light Rail Line, brought AAI $6 million in subcontracts
from ABB Sweden to build the car shells, and from Adtranz in Elmira, New
York, to build the trucks. After the propulsion systems and other interior
equipment are installed, AAI will complete the assembly of the cars. The
finished trains will provide improved transportation to the
Baltimore-Washington International Airport, Penn Station (Baltimore), and
the industrial base around Hunt Valley, Maryland.
10
<PAGE>
Workers test the
---------------------
wiring panel and
---------------------
other features on a [PHOTOGRAPH OMITTED]
---------------------
production prototype
---------------------
electric trolley bus,
---------------------
preparing it for
---------------------
delivery on schedule.
---------------------
<PAGE>
SYMTRON SYSTEMS, INC.
-----------------------------------------------------------------------
United Industrial's producer of computer-based simulation systems for
training firefighters achieved record sales of $11.6 million in 1995, more
than double the sales of the previous year. Bookings soared 62 percent,
reflecting substantial contract awards for the company's patented Aircraft
Rescue Fire Fighter Trainer (ARFFT).
Symtron's computer-controlled
- -----------------------------
Aircraft Rescue Fire Fighter [PHOTOGRAPH OMITTED]
- -----------------------------
Trainer is environmentally
- -----------------------------
friendly and safer to use.
- -----------------------------
The new contracts came from Chicago O'Hare International Airport,
Washington Dulles International Airport, and the Helena, Montana, regional
airport. Installation of these state-of-the-art systems is currently in
progress at all three sites, with work scheduled to be completed in 1996.
In contrast to older training systems that burned highly polluting and
hazardous aviation fuel, Symtron's computer-controlled liquid propane
system is environmentally friendly and safer to use. The ARFFT includes a
large mock-up of a crashed fuselage situated in a 125-foot-diameter burn
area. A computer operator can ignite or extinguish the flames with a single
keystroke, lessening risk to trainees learning how to rescue passengers
from burning planes.
A Structural Fire Fighter Trainer ordered in 1995 for Henderson,
Nevada, will serve as a regional center at which local firefighters can
upgrade their skills in combating home and other building fires. Structural
systems also were purchased this year by a community college in Clinton,
Michigan, and a fire department in Kassell, Germany.
Symtron's Military Fire Fighter Trainer Program was awarded $2.7
million in increased payments on U.S. Navy contracts for systems that teach
sailors how to deal with shipboard blazes. The recently passed Defense
Appropriation bill offers the company the prospect of orders for a
significant number of structural fire trainers to be installed on U.S. Army
bases.
In development at Symtron is a Mobile Aircraft Rescue Fire Fighter
Trainer (MARFFT), a portable system that will be transported from site to
site on two trailers and shared inexpensively among smaller airports.
12
<PAGE>
An airport rescue
- ---------------------
crew uses Symtron's
- ---------------------
ARFFT to learn how to [PHOTOGRAPH OMITTED]
- ---------------------
extinguish intense
- ---------------------
fuel-spill fires.
- ---------------------
<PAGE>
This Hydrograte
- ---------------------
stoker in Flint,
- ---------------------
Michigan, burns [PHOTOGRAPH OMITTED]
- ---------------------
biomass wood waste to
- ---------------------
generate electricity.
- ---------------------
<PAGE>
DETROIT STOKER COMPANY
-----------------------------------------------------------------------
United Industrial's energy-systems subsidiary registered a sharp gain in
operating income in 1995 as a result of a 17 percent increase in sales
coupled with savings from cost containment measures.
More than 75 percent of Detroit's 1995 contracts were for
Hydrograte(R) stokers and upgrading of existing stoker installations. The
Hydrograte has long been popular in the pulp and paper industry, where wood
waste is burned to generate process steam and electricity. This year the
largest Hydrograte ever built at Detroit's Monroe, Michigan, facility was
exported to Fraser Paper in New Brunswick, Canada. In addition to wood
waste, other renewable biomass fuels are finding increasing favor
worldwide, including such agricultural waste products as bagasse, olive
pits, chicken litter, and sunflower hulls. A Hydrograte now being installed
by Detroit in Bahia Blanca, Argentina, for the Cargill Corporation will be
fueled with sunflower hulls. Combustion of biomass generally produces
extremely little pollution, as compared with the fossil fuels.
Detroit's Hydrograte can burn
- ------------------------------
renewable biomass fuels that [PHOTOGRAPH OMITTED]
- ------------------------------
produce very little pollution.
- ------------------------------
Aftermarket sales of stoker replacement parts and retrofits remained
strong in 1995, delivering profit margins that contributed significantly to
earnings. Over the past two years Detroit's experienced sales and service
personnel boosted the company's market share of this business by about 6
percent.
Detroit's product line of natural gas and oil burners are being
successfully installed on both new and older industrial boilers. The
burners are designed to meet federal and state environmental laws requiring
low emission levels of nitrous oxides. A recent contract from General
Motors involved the repowering and fuel conversion of two existing boilers
at the firm's Pontiac, Michigan, fabrication plant.
NEO PRODUCTS COMPANY
-----------------------------------------------------------------------
United Industrial's Chicago-based producer of custom thermoplastic parts
saw record sales in 1995 and operating income nearly double that of 1994.
Neo is molding all of the fuel tank reservoirs for two 1997 General Motors
car models. A $4.7 million supply agreement with Tenex Corporation calls
for the fabrication of a variety of office wastebaskets. Neo expects to
continue its investment in modern capital equipment.
15
<PAGE>
CONTENTS
Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
- ---------------------------------------------------------
Consolidated Balance Sheets 20
- ---------------------------------------------------------
Consolidated Statements of Operations 22
- ---------------------------------------------------------
Consolidated Statements of Cash Flows 23
- ---------------------------------------------------------
Notes to Consolidated Financial Statements 24
- ---------------------------------------------------------
Report of Independent Auditors 37
- ---------------------------------------------------------
Five-Year Financial Data 38
- ---------------------------------------------------------
<PAGE>
Management's Discussion and Analysis
- --------------------------------------------------------------------------------
of Financial Condition and Results of Operations
Results of Operations
Net sales of $227,398,000 in 1995 rose by 8% from 1994. The increase was
attributable to all segments. In the defense segment, which recorded a 7%
increase, the Company's diversification into transportation systems has resulted
in initial program sales, and the recovery of the commercial airline industry
has boosted sales of hydraulic test equipment. The synergies achieved through
the combination of Symtron's engineering capabilities and AAI's manufacturing
and installation capabilities have contributed to a better than twofold increase
in sales of firefighter systems. In 1994, due to an overall reduction in defense
spending, net sales of $209,727,000 were $43,266,000 lower than 1993 net sales
of $252,993,000. The defense segment's business is heavily influenced by changes
in the budgetary plans and procurement policies of the U.S. Government.
Reductions in defense spending and program cancellations in recent years have
adversely affected operating results. Further, government contracts are subject
to price redetermination under certain circumstances and may be terminated for
the convenience of the government. The Company intends to maintain a strong
focus on Department of Defense (DOD) opportunities and believes it is well
positioned over the long term to benefit from the demand for advanced
technological systems by the U.S. and foreign governments. Sales to agencies of
the U.S. Government, primarily by the defense segment, were $154,346,000 in
1995, $159,766,000 in 1994, and $172,169,000 in 1993. The Company's energy
segment recorded a 17% increase in sales in 1995 as compared to 1994, primarily
due to increased volume of sales of Hydrograte stokers. Sales in 1994 trailed
those in 1993 by $2,559,000 generally due to lower stoker sales.
Gross profit amounted to $45,259,000 or 19.9% in 1995, $46,951,000 or 22.4%
in 1994, and $43,503,000 or 17.2% in 1993. In 1995, the reduction of gross
profit in the defense segment resulted primarily from the recognition of
approximately $10,200,000 of losses on contracts compared to $5,600,000 of
losses in 1994. In 1993, such contract losses were $28,000,000. In 1995, these
losses primarily pertain to reserves taken on one contract: a helicopter
simulator program that eroded the current year's pretax earnings by about
$6,600,000, of which approximately $5,100,000 was recorded in December when the
Company finished its latest estimate to complete. The integration phase of this
project has started and remains on schedule. The Company is optimistic that it
has sufficiently reserved for costs to complete this contract. Also in the
fourth quarter of 1995, the Company recorded a $2,000,000 charge to reflect
certain finished goods and work in progress inventories related to a particular
program at net realizable value. Partially offsetting these charges was the
increased profitability of the Company's hydraulic test equipment business
and growth in sales of certain highly profitable operational and maintenance
training simulators. The increased gross profit in the energy segment was
essentially due to the increased volume and profit margins on sales of
Hydrograte stokers. The increase in gross profit in 1994 compared to 1993
represents improved profit performance by the defense subsidiary, including the
Company's efforts to control costs on certain major long-term contracts,
partially offset by lower sales of stoker equipment at the energy segment.
Selling and administrative expenses as a percentage of sales were 18.1% in
1995, 19.1% in 1994, and 17.2% in 1993. The decrease in 1995 has resulted from
the elimination of certain expenses produced by the Company's organizational
changes in 1994 and 1993, partially offset by a $1,000,000 charge related to the
1994 acquisition of Symtron (see Note 7). The increased percentage in 1994 was
due to the reduction in sales in that year. Interest income was $1,201,000 in
1995, $1,840,000 in 1994, and $3,650,000 in 1993. The decrease in interest
income was principally due to the reduced note receivable balance resulting from
the installment payments on such note receivable which had a 14% interest rate.
17
<PAGE>
Interest expense was $2,360,000 in 1995, $3,202,000 in 1994, and $3,011,000
in 1993. Decreased borrowings in 1995 resulted in lower interest expense. In
1994, decreased average borrowings were offset by higher interest rates.
In 1995, net income of $888,000 decreased $4,324,000 from $5,212,000 in
1994. These results compare to a loss of $12,017,000, before the effect of
changes in accounting, in 1993. The reduction of net income in 1995 resulted
primarily from the recognition of losses of approximately $12,200,000 by the
defense subsidiary on certain long-term contracts and inventory write-offs
mentioned earlier. In the Company's energy segment, increased sales volume and
improved profit margins were the primary reasons behind its improved results.
Net income in 1994 includes a net pension curtailment gain of $928,000 (see Note
11). In 1993, the net loss included a restructuring charge at AAI Corporation of
$22.5 million (see Note 17). A major portion of the charge resulted from the
termination of operations of AAI/MICROFLITE, a business acquired in 1991. Also
in 1993, the net loss was reduced by $1,288,000 for tax credits for research and
experimental expenditures and $994,000 resulting from a net cumulative effect of
changes in accounting principles.
Liquidity and Capital Resources
Cash and cash equivalents amounted to $11,915,000 at the end of 1995,
$6,132,000 at the end of 1994, and $3,906,000 at the end of 1993. The Company's
principal uses of capital during the past several years related to acquisitions,
new projects and the repayment of long-term debt. In January 1994, the Company
acquired Symtron Systems, Inc., a business engaged in the development and
production of patented firefighter trainers (see Note 7). Symtron serves both
government and commercial markets. Net advances of $9,316,000 have been made to
Symtron since its acquisition. The Company anticipates that the receipt of new
contracts will enable Symtron to become self-financing. Symtron's backlog at
December 31, 1995 has more than doubled from a year earlier. In 1995, the
Company made a $1,000,000 payment to the previous shareholders of Symtron based
on the profits on contracts existing at the acquisition date in accordance with
the purchase agreement. Additionally, contingent amounts are payable if certain
pretax profits, as defined in the purchase agreement, are earned for each of
the years in the four year period ending December 31, 1998. Other new
commercial ventures include AAI's entry into the transit systems market and
introduction of the Next Generation Weather Observing System (NEXWOS)and
ASOS II. In 1995, AAI's transportation subsidiary, Electric Transit, Inc.
(ETI), a joint venture between AAI and a Czech Republic firm, SKODA, delivered
on schedule the first pre-production electric trolley bus to the Miami Valley
Regional Transit Authority (MVRTA) for service in the Dayton, Ohio, area.
In 1994, ETI emerged the winner of a competition to build a fleet of 63
(subsequently reduced to 61) electric trolley buses for the MVRTA. Also in
1995, ASOS II sales were recorded to Saudi Arabia and Latvia. The Company
intends to continue increasing its diversification into non-DOD markets.
The Company expects to meet its cash requirements for 1996, including
amounts necessary to fund new business ventures described above, from operations
and borrowings under its exisiting lines of credit. The Company's defense
subsidiary has a revolving credit arrangement and note agreement that contain
restrictive covenants with respect to payment of dividends or advances and loans
to the Company. These restrictions have not materially affected the Company's
ability to meet its cash requirements. Annual installment payments of $8,540,000
on the Company's note receivable concluded in February 1995; interest income
related to this note decreased by approximately $997,000 in 1995 and $1,196,000
in 1994. Factors relating to the amounts of cash from operating, financing and
investing activities are explained in detail in the Consolidated Statements of
Cash Flows.
The Company's cash dividends of $.26 per share in 1995, $.28 per share in
1994, and $.44 per share in 1993, amounted to aggregate payments of $3,165,000
in 1995, $3,425,000 in 1994, and $5,381,000 in 1993. In 1994, the Company's
customary fourth quarter dividend was declared in February 1995 ($.07 per
share).
The ratio of current assets to current liabilities was 2.1 at the end of
1995, 2.3 at the end of 1994, and 2.0 at the end of 1993. The current ratio
decreased in 1995 principally due to the increase in the current portion of
long-term debt and increased in 1994, principally due to reductions in accounts
receivable from the U.S. Government and short-term borrowings.
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)
- --------------------------------------------------------------------------------
Capital expenditures were $5,705,000 in 1995, $4,146,000 in 1994, and
$5,931,000 in 1993. There are no material commitments for acquisition of capital
assets as of December 31, 1995.
On October 13, 1994, AAI entered into a two-year revolving credit agreement
with two banks for $20,000,000, including a commitment for up to $10,000,000 for
commercial letters of credit. The revolving credit is limited to a percentage of
the eligible accounts receivable, as defined. Immediately prior to entering into
this credit facility, AAI prepaid $5,000,000 of the $25,000,000 notes payable
with certain insurance companies, thereby reducing the outstanding principal
balance to an aggregate of $20,000,000. (See Note 6 for further information
concerning these agreements.)
At December 31, 1995 and 1994, AAI's net assets of approximately
$68,400,000 and $66,000,000, respectively, were restricted under debt
agreements.
Under an additional $9,000,000 line-of-credit agreement with a bank, which
expires June 30, 1996, the Company may borrow up to $9,000,000 including a
commitment for up to $4,000,000 of commercial letters of credit. A wholly owned
subsidiary is also a party to this agreement and may use up to $1,000,000 of the
line-of-credit. At December 31, 1995 the unused portion of this credit line was
$4,000,000. This agreement incorporates the covenants of the note purchase
guarantee agreement and is guaranteed by a subsidiary of the Company. The
Company believes it will be able to renew this agreement or obtain comparable
financing on substantially similar terms.
Long-term debt less the current portion amounted to $13,750,000,
$20,000,000, and $25,000,000 at December 31, 1995, 1994 and 1993, respectively.
The debt amounted to 13.8%, 18.4% and 22.6% of total capitalization in 1995,
1994, and 1993, respectively.
Earnings per share has been computed using the weighted average number of
the common and common equivalent shares outstanding and the assumed exercise of
all stock options having exercise prices less than the average market price of
the common stock using the treasury stock method.
Environmental and Other Litigation
The Company and the State of Arizona signed a Consent Decree and Work Plan
to settle a suit related to a small manufacturing facility operated by the
Company between 1959 and 1960. Without admitting liability, and in exchange for
a full release from liability by the State of Arizona Department of
Environmental Quality, the Company has agreed to undertake and pay for a
Remedial Investigation and Feasibility Study plus amounts for past and future
costs. The total estimated cost to the Company is approximately $1,900,000,
including the Company's best estimate of its share of the clean-up costs, which
are capped at $1,120,000 (see Note 16).
In May 1995, a subsidiary of the Company submitted a Request for Equitable
Adjustment to the U.S. Government for approximately $11,800,000 related to a
helicopter simulator contract (see Note 16). While the Company believes that
the formal claims asserted against the customer are meritorious, the customer
has asserted substantive defenses to these claims. Because the proceedings are
currently in the discovery phase, it is not possible at this time to determine
the ultimate amount of recovery of these costs.
19
<PAGE>
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
United Industrial Corporation
================================================================================
(Dollars in thousands) December 31 1995 1994
- --------------------------------------------------------------------------------
Assets
Current Assets
Cash and cash equivalents $ 11,915 $ 6,132
Trade receivables:
U.S. Government 20,650 24,613
Other 12,261 8,951
- --------------------------------------------------------------------------------
32,911 33,564
Inventories 47,922 53,486
Note receivable -- current portion -- 8,540
Prepaid expenses and other
current assets 1,761 1,667
Deferred income taxes 6,487 3,169
- --------------------------------------------------------------------------------
Total Current Assets 100,996 106,558
- --------------------------------------------------------------------------------
Other Assets 39,524 37,022
Property and Equipment
Land 1,886 2,471
Buildings and improvements 48,106 47,736
Machinery and equipment 73,978 72,157
Furniture and fixtures 5,253 5,360
- --------------------------------------------------------------------------------
129,223 127,724
Less allowances for depreciation
and amortization 86,637 82,510
- --------------------------------------------------------------------------------
42,586 45,214
- --------------------------------------------------------------------------------
$183,106 $188,794
================================================================================
20
<PAGE>
================================================================================
(Dollars in thousands) December 31 1995 1994
- --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
Short-term borrowings $ 3,000 $ 4,200
Accounts payable 10,132 8,769
Accrued employee compensation and taxes 6,536 6,526
Customer advances 6,384 6,981
Provision for contract losses 10,751 10,474
Federal income taxes -- 3,333
Current portion of long-term debt 6,250 --
Other liabilities 4,472 5,664
- --------------------------------------------------------------------------------
Total Current Liabilities 47,525 45,947
- --------------------------------------------------------------------------------
Long-Term Debt, Less Current Portion 13,750 20,000
Postretirement Benefits Other Than Pensions 21,322 20,618
Other Liabilities 4,529 4,580
Deferred Income Taxes 9,820 9,228
Shareholders' Equity
Common stock-par value $1.00 per share
Authorized shares -- 15,000,000
Outstanding shares:
1995 -- 12,170,793; 1994 -- 12,167,493 14,374 14,374
Additional capital 91,421 94,596
Retained earnings (deficit) (2,311) (3,199)
Cost of shares in treasury:
1995 -- 2,203,355 shares; 1994 -- 2,206,655 shares (17,324) (17,350)
- --------------------------------------------------------------------------------
Total Shareholders' Equity 86,160 88,421
- --------------------------------------------------------------------------------
$ 183,106 $ 188,794
================================================================================
See notes to financial statements
21
<PAGE>
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
United Industrial Corporation
================================================================================
(Dollars in thousands,
except per share data) Year ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Net Sales $ 227,398 $ 209,727 $ 252,993
Operating costs and expenses:
Cost of sales 182,139 162,776 209,490
Selling and administrative 41,246 39,990 43,429
Pension plan curtailment
income -- net -- (928) --
Loss (gain) on sale of assets -- net 336 (1,166) (1,595)
Other income -- net (127) (734) (41)
Interest income (1,201) (1,840) (3,650)
Interest expense 2,360 3,202 3,011
Restructuring charge -- -- 22,500
- --------------------------------------------------------------------------------
Total Operating Costs and Expenses 224,753 201,300 273,144
- --------------------------------------------------------------------------------
Income (Loss) Before Income Taxes
and Cumulative Effect of
Accounting Changes 2,645 8,427 (20,151)
Provision (credit) for income taxes
Federal:
Current 4,139 2,232 (3,705)
Deferred (2,726) 522 (4,405)
State 344 461 (24)
- --------------------------------------------------------------------------------
Income Taxes (Credit) 1,757 3,215 (8,134)
- --------------------------------------------------------------------------------
Income (Loss) Before Cumulative
Effect of Accounting Changes 888 5,212 (12,017)
- --------------------------------------------------------------------------------
Cumulative effect as of January 1, 1993
of changes in method of accounting for:
Postretirement benefits other
than pensions, net of taxes -- -- (12,890)
Income taxes -- -- 13,884
- --------------------------------------------------------------------------------
Net Income (Loss) $ 888 $ 5,212 $ (11,023)
- --------------------------------------------------------------------------------
Earnings (Loss) Per Share:
Earnings (loss) per share
before cumulative effect of
accounting changes $ .07 $ .43 $ (.98)
Cumulative effect of
accounting changes for:
Postretirement benefits
other than pensions -- -- (1.05)
Income taxes -- -- 1.13
- --------------------------------------------------------------------------------
Earnings (Loss) Per Share $ .07 $ .43 $ (.90)
================================================================================
See notes to financial statements
22
<PAGE>
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
United Industrial Corporation
================================================================================
(Dollars in thousands) Year ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Operating Activities
- --------------------------------------------------------------------------------
Net income (loss) $ 888 $ 5,212 $(11,023)
Adjustment to reconcile net income (loss)
to net cash provided by
operating activities:
Cumulative effect of changes in accounting for:
Postretirement benefits other than pensions -- -- 19,531
Income taxes -- -- (13,884)
Depreciation and amortization 8,300 8,291 7,430
Deferred income taxes (2,726) 1,223 (10,905)
Restructuring charge,
net of expenditures of $7,928 -- -- 14,572
Loss (gain) on disposal of property
and equipment 336 (1,166) (1,595)
Changes in operating assets and liabilities, net:
(Decrease) increase in current income taxes (3,333) 6,951 (6,602)
Decrease in trade receivables 653 12,611 4,313
Decrease (increase) in inventories 5,564 (6,218) 8,791
(Increase) decrease in prepaid
expenses and other current assets (94) 1,019 (964)
Decrease in accounts payable, accruals,
advances and other current liabilities (139) (6,081) (9,222)
Other -- net (3,175) (7,495) 536
- --------------------------------------------------------------------------------
Net Cash Provided By Operating Activities 6,274 14,347 978
- --------------------------------------------------------------------------------
Investing Activities
- --------------------------------------------------------------------------------
Purchase of property and equipment (5,705) (4,146) (5,931)
Acquisition of business -- net of cash received -- (2,291) --
Net proceeds from disposals of property
and equipment 370 7,264 2,374
Other -- net -- 590 (2,165)
Decrease in note receivable 8,540 8,540 8,540
- --------------------------------------------------------------------------------
Net Cash Provided By Investing Activities 3,205 9,957 2,818
- --------------------------------------------------------------------------------
Financing Acitivities
- --------------------------------------------------------------------------------
Increase in long-term liabilities 653 2,468 1,951
Proceeds from borrowings 9,000 12,000 12,721
Payments on long-term debt and borrowings (10,200) (33,500) (12,880)
Dividends (3,165) (2,571) (4,290)
Purchase of treasury shares -- (475) --
Proceeds from exercise of stock options 16 -- --
- --------------------------------------------------------------------------------
Net Cash Used in Financing Activities (3,696) (22,078) (2,498)
- --------------------------------------------------------------------------------
Increase in Cash and Cash Equivalents 5,783 2,226 1,298
- --------------------------------------------------------------------------------
Cash and cash equivalents at beginning of year 6,132 3,906 2,608
- --------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $ 11,915 $ 6,132 $ 3,906
================================================================================
See notes to financial statements
23
<PAGE>
Notes to Financial Statements
- --------------------------------------------------------------------------------
United Industrial Corporation
NOTE 1. NATURE OF OPERATIONS
- --------------------------------------------------------------------------------
United Industrial Corporation is a high technology company applying the
majority of its resources to the research, development and production of
military electronics and aerospace systems and components under defense
contracts. Other products include weather monitoring systems, transportation
systems, firefighter training systems, energy systems for industry and
utilities, and plastic products.
The principal lines of business are defense and related products, energy
generating systems and plastic products.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------------------
Use of Estimates in the Preparation of Financial Statements:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its subsidiaries. Significant intercompany accounts and transactions have
been eliminated in consolidation. Certain amounts in the prior years have been
reclassified to conform to the current year's classifications. The Company
includes in income its proportionate share of the net earnings or losses of
unconsolidated investees, when the Company's ownership interest is between 20%
and 50%.
Cash Equivalents:
The Company considers all highly liquid investments with a maturity of
three months or less when purchased to be cash equivalents. The carrying amount
of these investments reported in the balance sheet approximates their fair
value.
Inventories:
Inventories are stated at the lower of cost or market. At December 31, 1995
and 1994, approximately 7% of total inventory was priced by the last-in,
first-out (LIFO) method with the remainder priced at actual, average, or
standard cost. If the first-in, first-out (FIFO) method of inventory pricing had
been used, inventories would have been approximately $4,177,000 higher than
reported on December 31, 1995 and $4,174,000 higher than reported on December
31, 1994. In 1994 certain inventory quantities were reduced, resulting in
liquidations of LIFO inventory quantities carried at lower costs prevailing in
prior years. The effect was to increase net income by $159,000 ($.01 per share)
in 1994.
Inventories include amounts principally related to long-term contracts of
the Company's defense subsidiary, as determined by the percentage-of-completion
method of accounting. Sales and gross profit are principally recognized as work
is performed based on the relationship between actual costs incurred and total
estimated costs at completion. Alternatively, certain contracts provide for the
production of various units throughout the contract period and these contracts
are accounted for based on the units delivered. See Note 4.
Property and Equipment:
Property and equipment are stated at cost. The policy of the Company is to
provide for depreciation on the straight-line, sum-of-the-years digits, and
declining-balance methods, by annual charges to operations calculated to
amortize the cost over the estimated useful lives of the various classes of
property.
24
<PAGE>
Earnings per Share:
Earnings per share has been computed using the weighted average number of
the common and common equivalent shares outstanding, and assuming exercise of
all stock options having exercise prices less than the average market price of
the common stock using the treasury stock method: 12,193,179 in 1995, 12,241,503
in 1994, and 12,258,693 in 1993.
Stock Based Compensation:
The Company grants stock options for a fixed number of shares to employees
with an exercise price not less than market value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25, "Accounting for Stock Issued to Employees," and intends to
continue to do so.
New Accounting Pronouncements:
In March 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires impairment losses to be
recorded on long-lived assets used in operations when indicators of impairment
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company will adopt SFAS
No. 121 in the first quarter of 1996 and, based on current circumstances, does
not believe the effect of adoption will be material.
NOTE 3. TRADE RECEIVABLES
- --------------------------------------------------------------------------------
Amounts due from the U.S. Government primarily related to long-term
contracts of the Company's defense subsidiary were as follows:
(Dollars in thousands) December 31 1995 1994
- --------------------------------------------------------------------------------
Amounts billed $13,882 $18,741
Unbilled recoverable costs and earned fees 6,521 5,500
Retainage per contract provisions 247 372
- --------------------------------------------------------------------------------
$20,650 $24,613
================================================================================
Billed and unbilled amounts above include $4,405,000 and $4,415,000 at
December 31, 1995 and 1994, respectively, related to contracts for which the
Company's defense subsidiary is a subcontractor to other government contractors.
Unbilled recoverable costs and earned fees substantially represent amounts that
will be collected within one year. Retainage amounts will generally be billed
over the next twelve months.
NOTE 4. INVENTORIES
- --------------------------------------------------------------------------------
(Dollars in thousands) December 31 1995 1994
- --------------------------------------------------------------------------------
Finished goods and work in progress $ 13,642 $ 16,537
- --------------------------------------------------------------------------------
Costs and earnings relating to long-term contracts 61,906 67,105
Deduct progress payments related to long-term contracts (32,363) (34,608)
- --------------------------------------------------------------------------------
Costs and earnings in excess of billings 29,543 32,497
- --------------------------------------------------------------------------------
Total finished goods and work in progress 43,185 49,034
Materials and supplies 4,737 4,452
- --------------------------------------------------------------------------------
$ 47,922 $ 53,486
================================================================================
The inventoried costs associated with long-term contracts include costs and
earnings ($29,543,000 in 1995 and $32,497,000 in 1994) of incomplete contracts
not yet billable to the customer. These amounts represent the difference between
the percentage-of-completion method of accounting for long-term contracts used
to record operating results by the Company's defense subsidiary and the amounts
billable to the customer under the terms of the specific contracts. Estimates of
final
25
<PAGE>
contract costs and earnings (including earnings subject to future determination
through negotiation or other procedures) are reviewed and revised periodically
throughout the lives of the contracts. Adjustments of earnings resulting from
the revisions are recorded on a current basis. The Company recognized losses of
$10,200,000 ($6,059,000, net of tax benefit, or $.50 per share) during 1995 and
$5,600,000 ($3,461,000 net of tax benefit, or $.28 per share) during 1994,
resulting primarily from revision of cost estimates on certain major long-term
contracts. Some of these losses represent charges for costs incurred in excess
of earnings under a certain government fixed price contract as a result of
changes, delays and disruptions to that contract and that are currently the
subject of formal claims asserted by the Company against the customer.
Costs and earnings in excess of billings include amounts on certain government
contracts in excess of negotiated contract value. These amounts totalled
approximately $12,000,000 at December 31, 1995 and $11,205,000 at December 31,
1994 and are or will be the subject of formal claims if not resolved via
negotiation. The carrying amounts in costs and earnings in excess of billings
are based on costs incurred to date and management's best estimate of the costs
that will be incurred to complete performance of the related contract. Regarding
a certain helicopter simulator program for the U.S. Government, the Company
believes that the formal claims asserted against the customer are meritorious.
The customer has asserted substantive defenses to these claims. Because the
proceedings are currently in the discovery phase, it is not possible at this
time to determine the ultimate amount of recovery of these costs. It is
reasonably possible that the Company's estimates of recoverable costs may change
in the near term as a result of the proceedings with respect to the Company's
formal claims and other ongoing negotiations with the customer. Inventories do
not include any significant amounts of unamortized tooling, learning curve, and
other deferred costs, claims, or other similar items whose recovery is
uncertain.
The Company has estimated $7,700,000 as the net realizable value of certain
non-contract related finished goods and work in progress inventory. The Company
has identified a number of potential buyers for a substantial portion of the
inventory. However, the Company faces significant competition from other
producers of similar products. It is reasonably possible that the Company may
not be able to finalize an agreement for the sale of this inventory due to
competition and technological limitations. If this occurs, the net realizable
value of this inventory could be reduced in the near term.
NOTE 5. OTHER ASSETS
- --------------------------------------------------------------------------------
(Dollars in thousands) December 31 1995 1994
- --------------------------------------------------------------------------------
Net pension asset $25,534 $22,337
Patents and other intangible assets 9,771 11,464
Other 4,219 3,221
- --------------------------------------------------------------------------------
$39,524 $37,022
================================================================================
Patents and other intangible assets represent assets acquired in connection
with purchased businesses and are being amortized primarily on a straight-line
basis over 5 to 15 years. Amortization expense amounted to $1,694,000 in 1995,
$1,683,000 in 1994, and $538,000 in 1993. Accumulated amortization amounted to
$5,003,000 and $3,309,000 at December 31, 1995 and 1994, respectively.
During 1994, the Company acquired approximately $7 million of patents and
other intangible assets related to the purchase of Symtron Systems, Inc.
NOTE 6. LONG-TERM DEBT AND CREDIT ARRANGEMENTS
- --------------------------------------------------------------------------------
In 1992, AAI Corporation (a wholly owned subsidiary) entered into a note
purchase agreement with certain insurance companies for $25,000,000. The
proceeds of the note were principally used to repay
26
<PAGE>
the then outstanding borrowings of AAI. The interest rate is 8.65% and is
payable semi-annually. AAI prepaid $5,000,000 of the note in 1994. The remaining
principal is to be repaid in three equal annual payments of $6,250,000
commencing July 31, 1996, and a final payment of $1,250,000 in 1999.
The Company is a guarantor of the agreement and together with AAI must
comply with certain covenants including, but not limited to, provisions related
to dividends, indebtedness, working capital, net worth, interest coverage and
debt to equity ratios.
On October 13, 1994, AAI entered into a two year revolving credit agreement
with two banks for $20,000,000, including a commitment for up to $10,000,000 of
commercial letters of credit. The revolving credit is limited to a percentage of
the eligible accounts receivable, as defined. The agreement provides that AAI
may select among several interest rate options. The agreement provides for
restrictive covenants among which are the maintenance of a certain capital base,
as defined; leverage and cash flow coverage ratios; limitations on indebtedness;
and limitations on transfers of funds and use of such funds by the Company or
its wholly owned subsidiaries. Borrowings under the credit agreement and the
outstanding notes with the insurance companies are collateralized by the capital
stock and assets of AAI and its wholly owned subsidiaries and certain wholly
owned subsidiaries of the Company. Such borrowings are guaranteed by the
Company, certain of its wholly owned subsidiaries and all AAI wholly owned
subsidiaries. There were no borrowings outstanding under the credit agreement at
December 31, 1995.
At December 31, 1995 and 1994, AAI's net assets of approximately
$68,400,000 and $66,000,000, respectively, were restricted under debt
agreements.
Under an additional line-of-credit agreement with a bank, the Company may
borrow up to $9,000,000 including a commitment for up to $4,000,000 of
commercial letters of credit. Detroit Stoker Company, a wholly owned subsidiary,
also a party to the agreement, may use up to $1,000,000 of the line-of-credit
including commercial letters of credit. At December 31, 1995, the unused portion
of this credit line was $4,000,000 of which $2,000,000 may be used for
commercial letters of credit. The credit agreement expires June 30, 1996, and
requires commitment fees which are not material. The agreement incorporates the
covenants of the note purchase guaranty agreement and is guaranteed by a
subsidiary of the Company.
The carrying amounts of the Company's borrowings under its short-term
revolving credit agreements and long-term debt approximate their fair value.
Interest expense was $2,360,000 in 1995, $3,202,000 in 1994, and $3,011,000
in 1993. Interest paid was $2,270,000 in 1995, $3,323,000 in 1994, and
$2,950,000 in 1993.
The weighted average interest rate on short-term borrowings outstanding at
December 31, 1995 and 1994, was 7.14% and 7.67%, respectively.
NOTE 7. ACQUISITIONS
- --------------------------------------------------------------------------------
On January 18, 1994, the Company purchased all the outstanding shares of
Symtron Systems, Inc. (Symtron), a producer of firefighter training simulators
for government and commercial markets. The purchase price consisted of cash
payments of $2,000,000, assumption of certain liabilities of approximately
$5,900,000, and a contingent payment of up to $1,000,000, based on profits on
contracts existing at the acquisition date. In 1995, the Company made the
contingent payment of $1,000,000, which was classified as selling and
administrative expense in the 1995 financial statements. Additionally,
contingent amounts are payable if certain pretax profits, as defined in the
purchase agreement, are earned for each of the years in the four year period
ending December 31, 1998. Funds generated from operations and an existing line
of credit were utilized to finance the purchase of Symtron.
The acquisition was accounted for as a purchase; accordingly, the
operations of Symtron are included in the Company's 1994 financial statements
from the date of acquisition. Total revenues of Symtron in 1993 and 1992 were
less than 3% of the consolidated sales of the Company and total assets were less
than 2% of consolidated assets.
27
<PAGE>
NOTE 8. STOCK OPTIONS
- --------------------------------------------------------------------------------
In May 1994, the shareholders approved the 1994 Stock Option Plan, which
provides for the granting of options with respect to the purchase of an
aggregate of up to 600,000 shares of common stock of the Company from time to
time to key employees of the Company and its subsidiaries. Options granted may
be either "incentive stock options," within the meaning of Section 422A of the
Internal Revenue Code, or non-qualified options.
The options are granted at not less than market value at the date of grant and
are exercisable over a period determined by the Board of Directors, but no
longer than ten years after the date they are granted. During 1994, options were
granted for 94,000 shares at exercise prices of $4.50 and $4.75 per share.
(Number of shares)
- --------------------------------------------------------------------------------
Outstanding, December 31, 1994 $4.50 and $4.75 94,000
Granted $5.50 and $6.25 139,000
Cancelled $4.75 to $6.25 (115,700)
Exercised $4.75 (3,300)
- --------------------------------------------------------------------------------
Outstanding, December 31, 1995 $4.50 to $5.50 114,000
- --------------------------------------------------------------------------------
Exercisable, December 31, 1995 $4.50 and $4.75 85,000
- --------------------------------------------------------------------------------
Available for grant, end of year 482,700
================================================================================
NOTE 9. LEASES
- --------------------------------------------------------------------------------
Total rental expense for all operating leases amounted to $2,632,000 in
1995, $2,714,000 in 1994, and $2,803,000 in 1993. Contingent rental payments
were not significant.
The future minimum rental commitments as of December 31, 1995, for all
noncancelable leases were $2,200,000 in 1996; $765,000 in 1997; $532,000 in
1998; $315,000 in 1999; $240,000 in 2000; and $120,000 thereafter.
NOTE 10. CHANGES IN SHAREHOLDERS' EQUITY
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Minimum
Retained Pension Share-
Common Additional Earnings Treasury Liability holders'
(Dollars in thousands) Stock Capital (Deficit) Stock Adjustment Equity
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 14,374 $ 99,496 $ 4,573 $ (16,875) -- $ 101,568
Net loss -- -- (11,023) -- -- (11,023)
Cash dividends declared ($.35 per share) -- (2,329) (1,961) -- -- (4,290)
Adjustment for minimum pension liability -- -- -- -- $ (901) (901)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1993 14,374 97,167 (8,411) (16,875) (901) 85,354
Net income -- -- 5,212 -- -- 5,212
Cash dividends declared ($.21 per share) -- (2,571) -- -- -- (2,571)
Purchase of 91,200 shares -- -- -- (475) -- (475)
Adjustment for minimum pension liability -- -- -- -- 901 901
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994 14,374 94,596 (3,199) (17,350) -- 88,421
Net income -- -- 888 -- -- 888
Cash dividends declared ($. 26 per share) -- (3,165) -- -- -- (3,165)
Stock options -- (10) -- 26 -- 16
- -----------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 $ 14,374 $ 91,421 $ (2,311) $ (17,324) -- $ 86,160
===================================================================================================================================
</TABLE>
28
<PAGE>
NOTE 11. PENSION ARRANGEMENTS AND SPECIAL TERMINATION BENEFITS
- --------------------------------------------------------------------------------
The Company and its subsidiaries have a number of noncontributory defined
benefit pension plans covering substantially all employees. Plans covering
salaried and management employees provide pension benefits that are based on the
employee's average compensation for the highest five consecutive years before
retirement and years of service. Plans covering hourly employees and union
members generally provide benefits of stated amounts for each year of service.
The Company's funding policy for the plans is to make the minimum annual
contributions required by applicable regulations.
A summary of the components of net periodic pension cost for the plans is
as follows:
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Service cost--benefits earned during the period $ 682 $ 3,238 $ 3,045
Interest cost on projected benefit obligation 10,689 10,507 10,388
Actual return on plan assets (29,770) (1,891) (12,671)
Net amortization and deferral 19,075 (8,898) 2,168
Curtailment (gain) expense -- (928) 698
- --------------------------------------------------------------------------------
Total pension costs $ 676 $ 2,028 $ 3,628
================================================================================
Assumptions primarily used in the accounting for the plans were:
1995 1994 1993
- --------------------------------------------------------------------------------
Weighted-average discount rates 7.3% 8.5% 7.5%
Rates of increase in compensation levels 4% 4% 4%
Expected long-term rate of return on assets 8.5% 8.5% 8.5%
================================================================================
The following table sets forth the funded status and amounts recognized in
the Consolidated Balance Sheets at December 31, 1995 and 1994, for the Company's
pension plans:
Plans with assets in excess of accumulated benefit obligation:
(Dollars in thousands) 1995 1994
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $ 146,015 $ 118,900
- --------------------------------------------------------------------------------
Accumulated benefit obligation $ 147,838 $ 122,407
- --------------------------------------------------------------------------------
Projected benefit obligation $ 148,024 $ 122,469
Plan assets at fair value 158,663 135,511
- --------------------------------------------------------------------------------
Projected benefit obligation less
than plan assets 10,639 13,042
Unrecognized net loss including prior service cost 15,427 9,861
Unrecognized net asset at beginning of year,
net of amortization (532) (566)
- --------------------------------------------------------------------------------
Net pension asset recognized in the
Consolidated Balance Sheets $ 25,534 $ 22,337
================================================================================
The plans' assets are invested in listed stocks and bonds and
interest-bearing cash equivalents.
On November 30, 1994, the energy systems segment suspended future benefit
accruals by freezing the non-union employees' defined benefit plan. This
resulted in a pension curtailment gain of $1,092,000 ($675,000 net of taxes or
$.06 per share). The Company replaced the defined benefit plan with a defined
contribution benefit plan. Employee contributions and employer matching are
based on specified formulas. In addition, a curtailment loss of $164,000
($101,000 net of tax benefit or $.01 per share) was recognized for another plan
due to reductions of staffing levels at the Company's defense segment. On
December 31, 1994, the defense segment merged its two defined benefit plans, and
in 1995 converted them into a single cash balance plan. In accordance with the
Cash Balance Plan, a participant's benefit includes the actuarial equivalent of
the participant's accrued benefit under the applicable predecessor
29
<PAGE>
plan, annual allocations based upon a percentage of salary, and interest earned
on such participant's account. The defense segment also amended its 401 (k) plan
in 1995 to provide for employer matching contributions based on specified
formulas. The effect of the changes in the plans' status has been reflected as
of December 31, 1994.
During 1993, the curtailment expense was included in the restructuring
charge (see Note 17).
NOTE 12. POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
- --------------------------------------------------------------------------------
In addition to the Company's defined benefit pension plans, a subsidiary of
the Company sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who have worked 10 years
and attained age 62 or 30 years of service with the Company. The plan is
non-contributory for retirees and contributory for spouses. The retiree spousal
contributions are adjusted annually. Both the retiree and spousal plan contain
cost-sharing features such as deductibles and coinsurance. The accounting for
the plan anticipates future cost sharing changes to the written plan that are
consistent with the Company's expressed intent to increase the spousal
contribution to the point that the entire cost for spouses will be contributory
at the end of 7 years commencing from January 1, 1996, and limit the amount it
will contribute for retiree insurance costs, as well as each active employee who
later becomes a retiree, to no more than double the amount which the Company
paid for coverage on January 1, 1993. The actuarial and recorded liabilities for
these benefits have not been funded. The accumulated benefit obligation was
determined using the unit credit method and an assumed discount rate of 7.5% in
1995 and 8.5% in 1994. The assumed health care cost trend rate used was 11.6%
for medical and 6.2% for dental decreasing to 6% and 5%, respectively, in the
year 2003. An increase of 1% in the health care trend rate would not materially
increase the cost or accumulated postretirement benefit due to the limit of the
Company not being obligated to pay more than double the amount which the Company
was paying for coverage on January 1, 1993.
Another subsidiary also sponsors a defined benefit health care plan that
provides postretirement medical and dental benefits to full-time employees who
have worked 10 years and attained age 60. Dental benefits cease for both retiree
and spouse once the retiree reaches age 65. Surviving spouses are eligible for
pre-retirement death benefits. Employees aged 55, but less than 60, with at
least 20 years of service receive only medical benefits commencing when the
retiree reaches age 65. No dental benefit is provided. The accumulated benefit
obligation was determined using the unit credit method and an assumed discount
rate of 7.25% in 1995 and 8.5% in 1994. The assumed health care cost trend rate
was 11.3% decreasing to 6% in 10 years. The health care cost trend rate
assumption has a significant effect on the amounts reported. A 1% increase in
the health care trend rate would increase the accumulated postretirement benefit
obligation at December 31, 1995 by $1,256,000 at year-end 1996. The effect of a
1% increase in the health care trend rate would not materially increase the net
periodic cost.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions," which requires that the projected future cost of providing
postretirement benefits, such as health and life insurance, be recognized as an
expense as employees render service instead of when the benefits are paid. The
effect of adopting the new rules increased the 1993 loss before the cumulative
effect of accounting changes by $693,000 ($441,000, or $.04 per share net of tax
benefit). The cumulative effect of this change in accounting increased the 1993
net loss by $12,890,000 or $1.05 per share net of tax benefit.
The costs of certain health care provided by the Company for eligible
retired employees were $1,694,000 in 1995, $1,719,000 in 1994, and $1,177,000 in
1993.
30
<PAGE>
The following table shows the two plans' combined funded status reconciled
with the amounts recognized in the Company's statements of financial position:
(Dollars in thousands) December 31 1995 1994
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation:
Retirees $ 15,184 $ 12,516
Fully eligible active plan participants 1,378 1,345
Other active plan participants 9,083 6,949
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation 25,645 20,810
Unrecognized net loss (4,323) (192)
- --------------------------------------------------------------------------------
Accrued postretirement benefit obligation $ 21,322 $ 20,618
================================================================================
Net periodic postretirement benefit cost included the following components:
(Dollars in thousands) Year ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Service cost $ 548 $ 516 $ 522
Interest cost 1,824 1,615 1,613
Curtailment gain -- -- (265)
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 2,372 $ 2,131 $ 1,870
================================================================================
NOTE 13. INDUSTRY SEGMENTS DATA
- --------------------------------------------------------------------------------
The Company is engaged in the design, development, manufacture, and sale of
products in three principal industries: electronics, aerospace, firefighter
training, and ordnance systems for defense and other government and
non-government entities in the United States and abroad; energy systems for
industries and utilities; and specialty plastic products.
Sales to agencies of the United States Government, primarily by the defense
segment, were $154,346,000 in 1995, $159,766,000 in 1994, and $172,169,000 in
1993. No single customer, other than the United States Government, accounted for
10 percent or more of net sales in any year. In 1993, export sales amounted to
$31,258,000 and were composed primarily of sales to Asia and Europe. Export
sales in 1995 and 1994 amounted to less than 10% of net sales in those years.
31
<PAGE>
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Net Sales
Defense $ 188,111 $ 175,535 $ 216,436
Energy Systems 32,549 27,835 30,394
Plastic Products 6,738 6,357 6,163
- --------------------------------------------------------------------------------
Total Net Sales $ 227,398 $ 209,727 $ 252,993
================================================================================
Operating Income (Loss)
Defense $ 6,436 $ 10,831 $ (20,396)(a)
Energy Systems 2,598 1,884 3,720
Plastic Products 389 219 474
Corporate (6,778) (4,507) (3,949)
- --------------------------------------------------------------------------------
Total Operating Income (Loss) $ 2,645 $ 8,427 $ (20,151)(a)
================================================================================
Identifiable Assets
Defense $ 150,507 $ 151,202 $ 155,822
Energy Systems 23,103 21,313 20,414
Plastic Products 2,943 2,899 2,645
Corporate 6,553 13,380 23,772
- --------------------------------------------------------------------------------
Total Identifiable Assets $ 183,106 $ 188,794 $ 202,653
================================================================================
Capital Expenditures
Defense $ 4,572 $ 3,304(b)(c) $ 4,395
Energy Systems 805 624 1,387
Plastic Products 289 149 149
Corporate 39 69 --
- --------------------------------------------------------------------------------
Total Capital Expenditures $ 5,705 $ 4,146(b)(c) $ 5,931
================================================================================
Depreciation Expense
Defense $ 5,616 $ 5,470 $ 4,999
Energy Systems 839 917 840
Plastic Products 134 101 90
Corporate 17 8 7
- --------------------------------------------------------------------------------
Total Depreciation Expense $ 6,606 $ 6,496 $ 5,936
================================================================================
(a) Includes restructuring charge of $22,500,000 as described in Note 17.
(b) Excludes assets acquired in the Symtron acquisition of $8,761,000 in 1994.
(c) Excludes $1,322,000 of assets transferred from inventory.
Operating income for each segment is total revenue less operating expenses,
excluding interest and corporate management fees. Research and development costs
included in costs and expenses amounted to $2,270,000 in 1995, $1,839,000 in
1994, and $1,518,000 in 1993. Corporate income (loss) includes net interest
(expense) income of ($1,159,000) in 1995, ($1,362,000) in 1994, and $639,000 in
1993. Corporate assets consist primarily of cash and cash equivalents.
32
<PAGE>
NOTE 14. INCOME TAXES
- --------------------------------------------------------------------------------
Effective January 1, 1993, the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." Under SFAS
No. 109, the liability method is used in accounting for income taxes. Under this
method, deferred tax assets and liabilities are determined based on differences
between financial reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in effect when the
differences are expected to reverse. In addition, the effect on deferred taxes
of a change in tax rates is recognized in the period that includes the enactment
date. Prior to the adoption of this statement, income tax expense was determined
using the deferred method whereby deferred tax expense was based on items of
income and expense that were reported in different years in the financial
statements and tax returns and were measured at the tax rate in effect in the
year the difference originated and reversed.
The Company elected to adopt SFAS No. 109 by reporting the cumulative
effect of the change in the method for accounting for income taxes as of the
beginning of 1993. The cumulative effect of this accounting change amounted to
$13,884,000 ($1.13 per share), which reduced the 1993 net loss. The effect of
the change in accounting for the years ended December 31, 1994 and 1993 was not
material. Prior years' financial statements have not been restated to apply the
provision of SFAS No. 109.
Following is a reconciliation of the difference between total tax expense
(benefit) and the amount computed by applying the federal statutory income tax
rate (34%) to income or (loss) from operations before income taxes:
(Dollars in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------
Federal income taxes (benefit) at statutory rate $ 899 $ 2,865 $(6,851)
State income taxes, net of federal income tax benefit 227 304 (16)
Provision for nondeductible expenses
(including $340 related to contingent payment
on Symtron acquisition) 460 -- --
Research credit -- -- (1,288)
Other -- net 171 46 21
- --------------------------------------------------------------------------------
Income Taxes (Credit) $ 1,757 $ 3,215 $(8,134)
================================================================================
In 1993, credits for research and experimental expenditures (research
credit) of $1,288,000 were recognized, thereby increasing the current federal
income tax credit. Approximately $726,000 of this research credit resulted from
payments received in 1993 related to amended returns of prior years and $562,000
principally resulted from the extension of the research credit which had
previously expired in June 1992. No research or experimental credits were
recognized in the provision for income taxes in 1995 and 1994.
Income tax payments were $7,400,000 in 1995, $3,609,000 in 1993, and a
refund of $2,879,000 in 1994.
33
<PAGE>
Deferred income tax balances:
(Dollars in thousands) December 31 1995 1994
- --------------------------------------------------------------------------------
Deferred Tax Asset
Losses on long-term contracts not currently deductible $ 4,145 $ 3,575
Postretirement benefits other than pensions
and other employee benefits 9,562 10,231
Product warranty and other provisions 1,504 1,463
Vacation pay accruals 539 468
Basis differences for asset sales 1,803 1,697
Other 64 248
- --------------------------------------------------------------------------------
Total Deferred Tax Asset 17,617 17,682
================================================================================
Deferred Tax Liability
Pension plans and other employee benefits (11,487) (11,380)
Excess tax depreciation (7,681) (9,716)
Patent amortization (1,594) --
Installment gain -- (2,643)
Other (188) (2)
- --------------------------------------------------------------------------------
Total Deferred Tax Liability (20,950) (23,741)
- --------------------------------------------------------------------------------
Net Deferred Tax Liability $ (3,333) $ (6,059)
================================================================================
The net deferred tax liability is classified as follows:
Net current deferred income tax asset $ 6,487 $ 3,169
- --------------------------------------------------------------------------------
Net non-current deferred income tax liability $ (9,820) $ (9,228)
- --------------------------------------------------------------------------------
The acquisition of Symtron had the effect of increasing deferred tax
liabilities in 1994 by approximately $1,859,000 for the difference between the
book and tax basis of assets and liabilities assumed on the date of acquisition.
NOTE 15. SELECTED QUARTERLY DATA (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands,
except per share data 1995 1994
and stock prices) Fourth Third Second First Fourth Third Second First
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 64,308 $ 53,568 $ 57,869 $ 51,653 $ 57,725 $ 59,710 $ 42,216 $ 50,076
Gross profit 9,059(a) 10,735 12,692 12,773 11,628 12,782 11,272 11,269
Net income (loss) (1,999)(a) 423 1,324 1,140 1,212 1,538 1,408 1,054
=======================================================================================================================
Earnings (loss) per share $ (.16)(a) $ .04 $ .11 $ .09 $ .10 $ .13 $ .11 $ .09
=======================================================================================================================
Dividends declared per share $ .05 $- $ .14 $ .07 $- $ .07 $ .07 $ .07
- -----------------------------------------------------------------------------------------------------------------------
Stock prices:
High $ 6 1/8 $ 7 1/8 $ 7 1/4 $ 5 3/4 $ 5 7/8 $ 6 $ 6 1/8 $ 6 5/8
Low $ 4 3/8 $ 5 5/8 $ 5 1/4 $ 4 7/8 $ 4 1/2 $ 4 1/4 $ 4 1/8 $ 5 1/8
=======================================================================================================================
</TABLE>
(a) The Company recorded charges of $6,261,000 for the revision of contract
loss estimates and $2,000,000 to write down certain non-contractual work in
progress and finished goods inventory to net realizable value in the fourth
quarter of 1995.
The Company's common stock is listed on the New York Stock Exchange. The
approximate number of shareholders of record as of February 29, 1996, was 4,000.
The debt covenants recited in Note 6 have certain restrictions on the
payment of dividends.
34
<PAGE>
NOTE 16. LITIGATION
- --------------------------------------------------------------------------------
The Company, along with numerous other parties, has been named in five tort
actions relating to environmental matters based on allegations partially related
to a predecessor's operations. These tort actions seek recovery for personal
injury and property damage among other damages. One tort claim is a certified
property and medical class action.
The Company owned and operated a small facility at a site in the State of
Arizona that manufactured semi-conductors between 1959 and 1960. All such
operations of the Company were sold by 1961. Although this facility may have
used trichloroethylene (TCE) in small quantities, there is no evidence that
this facility released or disposed of TCE at this site.
On May 18, 1993, the State of Arizona filed suit against the Company
seeking the recovery of investigative costs, injunctive relief to require the
Company to perform a Remedial Investigation and Feasibility Study (RI/FS), and
ultimately to require the remediation of alleged soil and groundwater
contamination at and near a certain industrial site. Since then the State has
brought in co-defendants whose operations at the site were substantially larger
than those of the Company.
On June 20, 1995 the Company and the State of Arizona executed an agreement
in principle to settle the litigation. In exchange for a full release from
liability by the State and the Arizona Department of Environmental Quality, the
Company without admitting liability, has agreed to the following:
o Undertake and pay for the costs of an RI/FS Work Plan, estimated at
$1,300,000.
o Pay $125,000 towards past costs incurred by the State of Arizona and the
Department of Environment Quality.
o Pay $125,000 towards costs of future remediation and clean-up of the site.
In addition, at the time the State selects a remedy, the Company agrees to
an additional contribution in the amount of a percentage of the total
estimated clean-up cost not to exceed an additional $1,120,000.
o The Company reserves all rights to seek contribution from other responsible
parties.
The Company and the State have signed a Consent Decree and Work Plan
incorporating these terms and conditions. The Consent Decree has been lodged
with the United States District Court for the District of Arizona for a 30-day
public comment period, at the conclusion of which the parties will seek court
approval of the settlement. Resolution of this matter will not have a materially
adverse effect on the consolidated financial position of the Company. The
Company has provided approximately $1,900,000 based on estimates of the total
cost for the RI/FS, estimates of amounts specified for past costs, and estimates
of future remediation and clean-up costs.
In May 1995, AAI Systems Management, Inc. (the "subsidiary"), an indirect
subsidiary of the Company, submitted to the U.S. Government (the "customer") a
Request for Equitable Adjustment (REA) totaling approximately $11,800,000 in
connection with a certain contract with the subsidiary. The REA seeks monetary
damages based on costs incurred by the subsidiary arising out of or in
connection with customer directed suspension of work and resulting schedule
delays, additional work directives, and other actions by the customer in
connection with the contract for which contractors are allowed recovery under
the Federal Acquisition Regulations. On July 14, 1995, the subsidiary received
the final decision of the customer rejecting the REA in its entirety. To fully
protect the Company's interest, on October 10, 1995, a Notice of Appeal of the
final decision was filed with the Armed Services Board of Contract Appeals
seeking monetary damages plus interest. While the Company believes that the
formal claims asserted against the customer are meritorious and the Company will
vigorously pursue recovery of the monies claimed, the customer has asserted
substantive defenses to these claims. Because the proceedings are currently in
the discovery phase, it is not possible at this time to determine the ultimate
amount of recovery of these costs.
The Company is involved in various other lawsuits and claims, including
certain other environmental matters, arising out of the normal course of its
business. In the opinion of management, the ultimate amount of liability, if
any, under pending litigation, including claims described above, will not have a
materially adverse effect on the Company.
35
<PAGE>
NOTE 17. RESTRUCTURING
- --------------------------------------------------------------------------------
On March 29, 1993, the Company's Board of Directors approved a plan of
reorganization and restructuring of the operations of its defense industry
subsidiary, AAI Corporation. The Company estimated and recorded in the first
quarter a restructuring charge of $23,000,000 ($14,700,000 or $1.20 per share
net of tax benefit). The plan of reorganization and restructuring, which was
considered necessary due to the declining Department of Defense budget and
continuing financial problems of the airline industry, included costs of
organizational and product-line changes, consolidation of facilities and work
force reductions of approximately 300 at AAI and its four subsidiaries. A major
portion of the charge resulted from the termination of the operations of
AAI/MICROFLITE, a manufacturer of flight simulators and training devices, due to
a lack of significant new orders. AAI/MICROFLITE was acquired in 1991.
AAI/MICROFLITE had net sales of $646,000 and incurred pretax losses of
$2,561,000 ($1,690,000 or $.14 per share, net of tax benefit) in 1993.
As of December 31, 1993, the restructuring program was substantially
completed. During 1994, $750,000 related to the consolidation and
discontinuation of certain manufacturing activities was expended. The net loss
for 1993 includes $22,500,000 of pretax charges ($14,370,000 or $1.17 per share
net of tax benefit) which consisted of $13,822,000 of write-downs to reduce the
carrying value of affected assets, including certain inventories, intangibles
and an office/manufacturing complex at AAI/MICROFLITE, to net realizable value,
$6,683,000 of employee-related expenses associated with the consolidation,
relocation, and termination of certain operations, and $1,995,000 of other
expenses.
Assets held for sale of $5,439,000 at December 31, 1993, relate to the
remaining assets of AAI/MICROFLITE, including the office/manufacturing complex.
The Company sold these assets in 1994, which resulted in a gain of $1,304,000.
The restructuring program was completed in 1994.
36
<PAGE>
Report of Independent Auditors
- --------------------------------------------------------------------------------
Board of Directors and Shareholders
United Industrial Corporation
New York, New York
We have audited the accompanying consolidated balance sheets of United
Industrial Corporation and subsidiaries as of December 31, 1995 and 1994, and
the related consolidated statements of operations and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of United
Industrial Corporation and subsidiaries at December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
As discussed in Notes 12 and 14 to the consolidated financial statements,
effective January 1, 1993 the Company changed its method of accounting for
postretirement benefits other than pensions and income taxes.
ERNST & YOUNG LLP
New York, New York
February 21, 1996
37
<PAGE>
Five-Year Financial Data
- --------------------------------------------------------------------------------
United Industrial Corporation
<TABLE>
<CAPTION>
===============================================================================================================================
(Dollars in thousands,
except per share data)
Year ended December 31 1995 1994 1993 1992 1991
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating Data
- -------------------------------------------------------------------------------------------------------------------------------
Net Sales $227,398 $209,727 $ 252,993 $ 251,315 $ 258,012
Operating costs 223,385 202,766 252,919 242,304 238,767*
Interest (income) expense -- net 1,159 1,362 (639) (686) (1,587)
Income (loss) before income taxes 2,645 8,427 (20,151)(a) 10,071(b) 21,276*
Income taxes (credit) 1,757 3,215 (8,134) 3,678 11,817(c)
Income (loss) from continuing
operations before cumulative
effect of accounting changes 888 5,212 (12,017)(a) 6,393(b) 9,459(c)*
Cumulative effect of accounting
changes -- -- 994 -- --
Income (loss) from continuing
operations 888 5,212 (11,023)(a) 6,393(b) 9,459(c)*
Earnings (loss) per share:
Income (loss) before cumulative
effect of accounting changes .07 .43 (.98)(a) .52(b) .77(c)*
Cumulative effect of accounting
changes -- -- .08 -- --
Earnings (loss) .07 .43 (.90)(a) .52(b) .77(c)*
Cash dividends paid on
common stock 3,165 3,425 5,381 7,845 7,840
Cash dividends declared per
common share .26 .21 .35 .64 .64
Shares outstanding as of year end
(in thousands) 12,171 12,167 12,259 12,259 12,252
- -------------------------------------------------------------------------------------------------------------------------------
Financial Position
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $183,106 $188,794 $ 202,653 $ 226,958 $ 208,885
Property and equipment 42,586 45,214 46,635 57,074 61,789
Long-term debt 13,750 20,000 25,000 25,880 7,365
Shareholders' equity 86,160 88,421 85,354 101,568 102,963
Shareholders' equity per share 7.08 7.27 6.96 8.29 8.40
- -------------------------------------------------------------------------------------------------------------------------------
Financial Ratios
- -------------------------------------------------------------------------------------------------------------------------------
Return on shareholders' equity 1.0% 6.0% -- 6.3% 9.2%
Net income as a percent of sales .4 2.5 -- 2.5 3.7
Long-term debt as a percent
of total capitalization 13.8 18.4 22.6 20.3 6.7
- -------------------------------------------------------------------------------------------------------------------------------
Statistical Data
- -------------------------------------------------------------------------------------------------------------------------------
Sales backlog as of year end $206,000 $218,000 $ 208,000 $ 239,000 $ 235,000
Capital expenditures 5,705 4,146 5,931 5,547 4,885
Depreciation and amortization 8,300 8,291 7,430 9,200 8,416
Number of employees 2,000 1,900 2,300 2,600 2,700
===============================================================================================================================
</TABLE>
(a) Includes restructuring charge of $22,500,000 ($14,400,000 or $1.17 per
share net of income tax benefit)
(b) Includes special termination benefits cost of $1,191,000 ($786,000 or $.06
per share).
(c) Includes a charge for prior years' federal income tax and interest of
$2,670,000 or $.22 per share.
* Includes income of $4,556,000 ($3,007,000 or $.25 per share, net of taxes)
related to a claim settlement and special termination benefits cost of
$3,638,000 ($2,401,000 or $.20 per share, net of tax benefit).
38
<PAGE>
Corporate Organization
- --------------------------------------------------------------------------------
United Industrial Corporation
Board of Directors
- --------------------------------------------------------------------------------
Harold S. Gelb,
Chairman of the Board
Howard M. Bloch,
Vice Chairman of the Board
Edward C. Aldridge, Jr.,
President and Chief
Executive Officer
The Aerospace Corporation
Richard R. Erkeneff,
President and Chief Executive
Officer of the Company and
AAI Corporation
Myron Simons,
Business Consultant
Susan Fein Zawel,
Vice President Corporate
Communications, Associate General
Counsel and Secretary of the Company
Honorary Director (nonvoting)
Bernard Fein,
Chairman Emeritus
Retired Chairman and
President of the Company
Corporate Officers
- --------------------------------------------------------------------------------
Richard R. Erkeneff,
President and Chief Executive
Officer
Robert W. Worthing,
Vice President and
General Counsel
James H. Perry,
Chief Financial Officer
and Treasurer
Susan Fein Zawel,
Vice President Corporate
Communications, Associate General
Counsel and Secretary
Edward A. Smolinski,
Assistant Treasurer and
Assistant Secretary
Senior Management
- --------------------------------------------------------------------------------
AAI Corporation
Richard R. Erkeneff,
President and
Chief Executive Officer
Paul J. Michaud,
Vice President, Chief Financial
Officer and Treasurer
Robert W. Worthing,
Vice President, General Counsel
and Secretary
Maurice P. Ranc,
Vice President and General
Manager, Defense Systems
G. Russell Zink,
Vice President and
General Manager, Weather Systems
Jackson R. Bell,
Vice President and General
Manager, Transportation Systems
Thomas E. Wurzel,
Vice President and General
Manager, Fluid Test Systems
Joseph F. Burger,
Vice President and General
Manager, Operations
Howard E. Butz,
Director, Total Quality
David A. Powell,
Director, Information Technology
Suzan J. Feild,
Director, Human Resourses
Detroit Stoker Company
James M. Ballentine,
Acting President and
Chief Executive Officer
Mark A. Eleniewski,
Executive Vice President
Gary K. Ludwig,
Vice President, Finance
Alan H. Miller,
Director, Human Resources
Neo Products Company
Michael A. Schillaci,
President and
Chief Executive Officer
Leonard M. Peznowski,
Controller
Symtron Systems, Inc.
John J. Henning,
President and Chief
Executive Officer
James W. Hanson,
Vice President and
General Manager
J. Thomas Roeder,
Vice President of Marketing
and Sales
Hy Luft,
Vice President, Programs
Richard A. Brandt,
Treasurer and Secretary
39
<PAGE>
Corporate and Shareholder Information
- --------------------------------------------------------------------------------
United Industrial Corporation
Corporate Headquarters
18 East 48th Street
New York, New York 10017
(212) 752-8787
Subsidiaries
AAI Corporation
P.O. Box 126
Hunt Valley, Maryland 21030
(410) 666-1400
Detroit Stoker Company
1510 East First Street
Monroe, Michigan 48161
(313) 241-9500
Symtron Systems, Inc.
17-01 Pollitt Drive
Fair Lawn, New Jersey 07410
(201) 794-0200
Neo Products Company
5400 South Kilbourn Avenue
Chicago, Illinois 60632
(312) 585-2500
Transfer Agent, Registrar and
Dividend Disbursing Agent
Shareholders may obtain
information relating to their
share position, dividends,
transfer requirements, lost
certificates and other related
matters by telephone or by
writing to:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
(718) 234-2700
Shareholder Relations
Security analysts, investment
professionals and shareholders
should direct their inquiries to:
Shareholder Relations
United Industrial Corporation
Independent Auditors
Ernst & Young LLP
787 Seventh Avenue
New York, New York 10019
Annual Meeting
The Annual Meeting of
Shareholders will be held at
10:00 a.m. on Tuesday, May 14,
1996, at:
The Park Lane Hotel
36 Central Park South
New York, New York
Corporate Counsel
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Form 10-K Report
A copy of the United Industrial Annual
Report on Form 10-K as filed with the
Securities and Exchange Commission may
be obtained without cost by writing to:
Shareholder Relations
United Industrial Corporation
Stock Listing
United Industrial Corporation common stock
is traded on the New York Stock Exchange
(Symbol: UIC)
Designed and Produced by Taylor & Ives, Inc., NYC
Writing: Walter Schneir
Major photography: Ted Horowitz, Kay Chernush pages 4 and 13
40
EXHIBIT 21
SUBSIDIARIES OF UNITED INDUSTRIAL CORPORATION
March 1, 1996
Approximate
Percentage of
State Voting
(or Securities
jurisdiction) Owned by
in which Immediate
Name Incorporated Parent
- --------------------------------------------------------------------------------
AAI Corporation Maryland 100% (a)
A.A.I. Engineering Support, Inc. Maryland 100 (b)
A.A.I. International, Inc. Delaware 100 (b)
Seti, Inc. Pennsylvania 100 (b)
AAI Systems Management, Inc. Maryland 100 (b)
AAI Medical, Inc. Maryland 100 (b)
AAI MICROFLITE Simulation
International Corporation Maryland 100 (b)
AAI/ACL Technologies, Inc. Maryland 100 (b)
AAI California Carshells, Inc. Maryland 100 (b)
Electric Transit, Inc. Ohio 53 (b)
Detroit Stoker Company Michigan 100 (a)
Midwest Metallurgical
Laboratory, Inc. Michigan 100 (c)
Neo Products Co. Illinois 100 (a)
Symtron Systems, Inc. New Jersey 100 (a)
U.I.C.-Del. Corporation Delaware 100 (a)
--------------------
(a) Percentage owned by United Industrial Corporation ("United").
(b) Percentage owned by AAI Corporation.
(c) Percentage owned by Detroit Stoker Company.
All of the subsidiaries listed above are included in the consolidated
financial statements of United.
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statement (Form S-8, No. 33-57065) pertaining to the United Industrial
Corporation 401(k) Retirement Savings Plan, and in the Registration
Statement (Form S-8, No. 33-53911) pertaining to the United Industrial
Corporation 1994 Stock Option Plan, of our report dated February 21,
1996, with respect to the consolidated financial statements and
schedules included in the Annual Report (Form 10-K) for the year ended
December 31, 1995.
ERNST & YOUNG LLP
New York, New York
March 27, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This Schedule contains summary financial
information extracted from the financial
statements contained in the body of the
accompanying Form 10-K and is qualified in its
entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 11,915
<SECURITIES> 0
<RECEIVABLES> 32,911
<ALLOWANCES> 0
<INVENTORY> 47,922
<CURRENT-ASSETS> 100,996
<PP&E> 129,223
<DEPRECIATION> 86,637
<TOTAL-ASSETS> 183,106
<CURRENT-LIABILITIES> 47,525
<BONDS> 18,279
0
0
<COMMON> 14,374
<OTHER-SE> 71,786
<TOTAL-LIABILITY-AND-EQUITY> 183,106
<SALES> 227,398
<TOTAL-REVENUES> 227,398
<CGS> 182,139
<TOTAL-COSTS> 223,385
<OTHER-EXPENSES> 209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,159
<INCOME-PRETAX> 2,645
<INCOME-TAX> 1,757
<INCOME-CONTINUING> 888
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 888
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
